What is indemnity insurance?

How does indemnity insurance work?

Indemnity insurance can protect you against all manner of problems that can arise with a house or property you’re buying. Specifically, it protects you from a third party making a future claim against you due to an issue with the property.

It insures one, specific issue, such as the lack of planning permission for amends that have been made to the property, for example.

You won’t face any legal costs if you have indemnity insurance, meaning you won’t need to worry about the issue cropping up again once you’re the owner. Indemnity insurance will also cover you for loss of value relating to the matter that it’s insured for.

Why get indemnity insurance?

Buying a property is a big expense, and it certainly isn’t risk free. Indemnity insurance can protect you against some of the things that could go wrong.

If you’re buying a property and have come across an issue or defect, buying an indemnity policy could mean you could go ahead with the purchase. It can be a lot quicker than spending time trying to have the issue resolved.

Why get an indemnity policy?

There are many reasons why an indemnity policy could help you. Here are some examples:

• Building regulations. Perhaps you’re buying a property from someone who can’t provide a building regulation certificate for completed works. An indemnity policy could cover costs that might arise if your local authority made a claim

• Planning permission. Sometimes, a seller can’t provide documentation to show that planning permission was given. An indemnity policy could cover you for any future costs associated with this

• Absence of easement. If certain elements of the property, like drains or even front door, can only be accessed via someone else’s land, you need a ‘right of easement’ to allow it. If this isn’t in place, an indemnity policy may be useful. It could cover the costs that might arise if the land owner stopped your access 

• Missing particulars. Sometimes, a property might have important elements like deeds or Land Registry documents missing. Indemnity insurance would protect you against any issues that came up in relation to this

• Chancel Repair Liability. If you’re buying a property that sits within the boundaries of a parochial church council, you could be subject to ‘Chancel Repair Liability’. This means that you, along with other properties within the boundary, could be liable to pay the costs of repairs to the church. An indemnity insurance policy would pay out for these so you didn’t have to

• Restrictive covenant. Perhaps you’re buying a property that has a ‘restrictive covenant’ on it, which stops you from doing something like building an extension. An indemnity insurance policy can protect you if previous owners have breached the restrictions

• Insolvency. If somebody has put money into your property to help you with the deposit, you might want indemnity insurance. If that contributor is later declared bankrupt, their creditors could try to make a claim on your property. Having an indemnity policy would protect you.

There are other reasons why you might want an indemnity policy, but these are common examples.

You must not discuss the issue that you’re getting indemnity insurance for with any third parties, as this could invalidate your policy.

How does planning permission indemnity insurance work?

If you’re buying a property and the owners have altered the property, you should ask to see the proof of planning permission. If the seller can’t provide these, it could be worth getting planning permission indemnity insurance.

The local authority could claim against you, as the property’s been altered without the right planning permission. If you have planning permission indemnity insurance it would pay out for the associated costs.

If you get planning permission indemnity insurance, don’t apply for retrospective permission. Doing so could invalidate your indemnity insurance. You’re essentially telling a third party about the issue.

It’s also worth remembering that if the works on the property were carried out more than four years ago, the risk of action is minimal. Councils don’t usual enforce after four years.

How does building indemnity insurance work?

If you’re buying a property, you might find that the current owners can’t give you the building regulations certificate. In that case, building indemnity insurance could be worth having. It could cover the associated costs if any issues arose from this.

However, it would also be a good idea to get a survey done to make sure the property is safe. A building regulations certificate provides reassurance that the right processes have been followed. Indemnity insurance can’t guarantee that the work’s been done well.

How much does indemnity insurance cost?

As with all insurance, this will depend on a variety of factors. To give you a quote, insurers will look at what you want the indemnity policy to cover, combined with the value of your property.

Some indemnity insurance can be priced as low as £20. Other policies could be around £500 or more. Remember that it’s a one-off payment, rather than a monthly premium.

You’ll be able to get a quote via your solicitor, conveyancer or a specialist broker. You can’t get this kind of insurance by doing a comparison online and there’s usually no option to negotiate.

Sometimes, you’ll pay for indemnity insurance yourself. But in many instances, you can negotiate with the seller and ask them to pay for it for you. They’ll usually be happy with this arrangement as it’s a way to salvage the sale. Alternatively, you can split the cost. It’s all down to how you negotiate. In other cases, you might decide that you don’t want to bother with an indemnity policy at all.

When I get a property indemnity insurance quote, does that cover me for a year?

No. When you buy indemnity insurance, you make a one-off payment. This covers you for the particular issue that you’ve chosen to cover until you sell the property. You can even pass on your indemnity policy to a new owner if you sell the property on, as long as the property’s value is still the same as when you bought it.

Your indemnity insurance quote might seem high, but remember that you’re only paying it once.

What is an indemnity policy not going to cover me for?

What indemnity insurance doesn’t cover you for, is to repair or replace something that breaks down in your home.

For example, an indemnity policy for a boiler where there’s no installation certificate wouldn’t pay out to repair or replace it. Indemnity insurance covers you for third party claims against you.