Indemnity insurance is all about protection against loss or harm.
It can work in two ways. Firstly, it can either offer you protection from being held financially responsible for any harm, damage or loss suffered by others – this would be the case if the person you are selling your property to suffered financial loss or was held legally accountable for something you or a previous owner had done to a property.
It can also protect you personally from loss, harm or damage – this would be the case if you were buying a property and found there was missing or incomplete paperwork, or if work was carried out without the proper permission required.
Indemnity insurance definition:
- protection or security against damage or loss
- Compensation for damage or loss sustained
- Something paid by way of compensation
- Protection from liabilities or penalties incurred by one’s actions
- Legal exemption from penalties attached to one’s actions
What is indemnity insurance when selling a house?
When you are selling a house, an indemnity policy can be a great option to protect you from any future repercussions if there is any property information missing or unavailable.
It may also be advised by your solicitor if they feel there may be any danger of future liability. Indemnity insurance policies of this nature seem to be increasingly common in the property selling process.
What does indemnity insurance cover?
Indemnity insurance can be purchased to cover a wide range of different circumstances. The most common indemnity insurance policies used when selling a house are:
Planning permission – if previous building work has been carried out, by you or a previous owner, but the planning permission documentation is absent or incomplete.
Restrictive covenant policy – Restrictive covenants can cover a huge number of different things; from dictating what you can and can’t do with your front lawn, to running a business from home to who you are able to sell your property to, ie. a local resident or only someone who will use the property as their main residence.
An indemnity insurance policy that covers a restrictive covenant will cover you if it is found that you, or a previous owner of the property, have inadvertently broken a restrictive covenant.
What is an indemnity insurance policy when buying a house?
Buying a house is a huge commitment, both personally and financially. As such, most buyers will want to ensure that the property they are planning to buy is a wise investment.
Solicitors can carry out all of the usual searches and request all the official paperwork relating to a property, but unfortunately, from time to time, property buyers find themselves with a nasty surprise and more responsibility that they planned for, and that is where an indemnity insurance policy when buying a house comes into play.
Indemnity insurance policies can be purchased to cover all sort of areas when buying a house.
Here are some of the most common indemnity insurance policies for the purchase of a property:
Pre-existing building work or extensions: This will cover anyone buying a house with an extension without building regs or other relevant paperwork/permission.
It will protect the policy holder from any costs that may arise if it is found that the work was carried out without the necessary permissions. In some cases you may simply be required to apply for planning permission retrospectively, but in other circumstances you may be required to remove the extension (at your own cost if you do not have an indemnity policy in place).
If you have an indemnity insurance policy in place it should not only cover the cost of removing the extension, it should also compensate you for any decrease in the value of your property as a result of removing it.
Restrictive covenant: Similarly, with a restrictive covenant indemnity insurance policy, property owners are not financially liable for any restrictive covenants that have been broken by previous property owners.
With an indemnity insurance policy in place you will be covered financially for any legal expenses resulting from a restrictive covenant that has been broken by a previous occupant and the cost of any building work required.
You should also be compensated for any negative impact on your property value.
Chancel repair liability: Owners of properties within a certain radius of a local Church of England church can be called upon to fund repairs to the church building – chancel repair liability indemnity insurance will protect property owners from this cost.
Right of access indemnity insurance : This type of indemnity insurance policy protects you if, for example, part of your property or utilities servicing your property can only be reached by going across your neighbour’s property.
With an indemnity insurance policy in place, you will be protected from legal costs if your neighbour attempts to prevent you from having access.
Why should I get an indemnity policy?
Although claims are rare, people are now more willing to take action if they feel they have been misled by the former owners, or if they face large financial bills to rectify a situation.
Indemnity insurance policies, although rarely required to pay out, are seen as a relatively cheap way to protect the buyer or seller from any future liability and reduce any delay to the sale that may be caused by trying to track down missing paperwork or resolve any concerns.
It is also, on occasion, something that your mortgage provider may request, in order to protect their financial interests. If an issue is raised about the property, it may affect the value of the property, and therefore result in them experiencing financial loss.
Examples of Indemnity Insurance:
Examples of indemnity insurance policies can be difficult to find because they cover such a vast range of circumstances.