Indemnity Insurance of Pre-deceasing Risks Lender conveyancing instructions

Natwest and Halifax, as with most banks, set their own requirements when it comes to pre-deceasing risks indemnity insurance. This page sets out to enlighten domestic conveyancing firms on the various lender conveyancing panel where the title for the the property to be mortgaged incorporates pre-deceasing risks. It is not a substitute for checking the CML handbook requirements for each lender, for example Santander, Barnsley BS or Lloyds TSB. The information on this page is not focused on pre-deceasing risks indemnity insurance requirements.

Need help with pre-deceasing risks indemnity insurance from your lender?

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Yorkshire Building Society and Nationwide like many banks, instructions are such that where pre-deceasing risks indemnity insurance is to be taken out:

• the level of indemnity must meet the requirements for the lender (See Part II Handbook requirements )
• your firm must disclose to the insurer all relevant information which you have obtained
• your firm must explain to the borrower that the borrower must comply with any conditions of the pre-deceasing risks indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in relation to the insurance
• you must approve the terms of the pre-deceasing risks policy on behalf of the mortgage company
• the pre-deceasing risks indemnity insurance policy must not contain terms that you know would void or prejudice the interests of the bank
• your practice must send a duplicate of the pre-deceasing risks indemnity insurance to the borrower and explain to the mortgagor why the pre-deceasing risks indemnity insurance policy was effected and that a further policy might be necessary if there is supplemental borrowing against the security of the property
• the pre-deceasing risks indemnity insurance policy must be effected at no expense to the mortgage company
• the pre-deceasing risks indemnity insurance policy needs to be in favor of the lender and, if possible, for the benefit of the mortgagor and any next owner or bank. Where the mortgagor will not be covered by the pre-deceasing risks indemnity insurance policy, the borrower must be informed accordingly.

As to the level of cover for the pre-deceasing risks indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Section 9.2 of the CML handbook PII requirements for lenders:

Pre-deceasing Risks Contingency Insurance : Reflections

The extent of the terms for pre-deceasing risks indemnity insurance are set out in the policy document. Conveyancing solicitors are obliged to point the borrower to the pre-deceasing risks indemnity insurance policy itself. The intention of pre-deceasing risks indemnity insurance is to afford indemnity in respect of the risks set out in the policy schedule - so it is essential check the document to ensure it is correct. The duration of this non-investment insurance contract is in perpetuity unless otherwise stated in the pre-deceasing risks indemnity insurance policy. Adequacy in this regard should be checked.

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Pre-deceasing Risks Contingency insurance: Important characteristics and benefits:

This policy would usually provide protection from financial loss that might arise in the event of a third party making a cliam in respect of the risks identified in the policy document. Pre-deceasing Risks indemnity insurance Policies should be checked for the following

• The cost of altering or taking down all, or part of the development and the reinstatement of the land, insofar as such alteration, demolition or re-instatement is made necessary by court order.
• Reimbursement for compensation incurred in any action in respect of the risks specified in the pre-deceasing risks policy, including incurred costs and expenses.
• All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
• Expenses for works (including professional fees) for the purpose of the development started, before the commencement of proceedings for the enforcement of the risks specified in the pre-deceasing risks indemnity insurance, to the extent that such costs are rendered abortive by court decision.
• Diminution in value resulting from the successful enforcement of the risks specified in the pre-deceasing risks policy.
• All sums paid with consent in writing from the insurance company to free the property from the risks specified in the pre-deceasing risks insurance.

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Always check what is not included in the pre-deceasing risks policy e.g. does the policy cover any residence that has been altered within the 12 months prior to the commencement of the policy? Are legal costs covered?

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Pre-deceasing Risks Indemnity Insurance has limitations - Additional considerations

Pre-deceasing Risks insurance may satisfy lenders such as Yorkshire Bank Home Loans or Barclays and prevent clients from from suffering financially but it cannot compensate for the stress and inconvenience the emotional suffering - after all the value of a home cannot always be measured in cash in the eyes of the owner.

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The above information covers to properties in England and Wales.