What Is an Indemnity Policy? How It Protects You from Financial Loss

For most of us, our house is the most expensive purchase we’ll ever make. That’s why having the best home insurance is so important. Home insurance covers costs associated with damage to your home and loss or theft of its contents. But it doesn’t typically help should any property-related legal strife come your way.

That’s why you need to know what indemnity cover is and how it can help. Our comprehensive guide explains everything you need to know about indemnity insurance and reducing anxiety when moving home.

Indemnity simply means security or protection against a loss or other financial burden. In the context of homes, an indemnity policy protects a home buyer or seller from financial losses connected to legal or structural issues.

In general, home insurance policies don’t include indemnity coverage as standard. Most home or property insurance policies cover damage to your home from risks such as fire, theft, or flooding. You might also have contents insurance for damage to or loss of personal belongings like furniture and electronics.

To be sure you have cover for hidden risks or legal issues that could affect your ownership or the value of your home, you’ll need a separate indemnity policy.

You may require an indemnity insurance policy in the following situations:

Missing deeds or unclear boundaries can lead to disputes with potential buyers, sellers, or neighbours. An indemnity policy will help cover the cost of any problems with the property’s legal ownership.

You might think that previously sold houses shouldn’t present problems for future sales, but that isn’t always the case. Issues can arise if previous owners have changed the property without the required planning permission. For example, house extensions or loft conversions can be at risk of council action if owners don’t have the necessary approvals. Indemnity insurance will cover legal costs in this scenario.

Some properties may not have official rights of access to certain parts of the land, such as a private road or a shared driveway. Although this isn’t always immediately apparent to a house buyer, solicitors tend to flag it during searches and surveys. Indemnity insurance can help should disputes arise regarding access.

Restrictive covenants are legally binding rules that limit what homeowners can do with their property. Examples include restrictions on building extensions or additional structures, altering the external appearance of your house, or running a business from your home, among many others. An indemnity policy offers protection if you or a previous owner have unwittingly violated these restrictions.

Indemnity insurance covers you if a third party (e.g., a prospective buyer) makes a claim concerning issues like those mentioned above.

A robust policy shields you from any compensation claims resulting from structural defects or failure to abide by building regulations. You’ll have financial protection against any costs arising from building works or alterations mandated by the council.

There’s a wide range of indemnity policies for homeowners. Here are the most common types:

A building regulations policy protects against claims or local authority enforcement for work done on the property that doesn’t comply with building regulations.

This type of policy covers the costs of legal action or enforced demolition if significant building work took place on a property without first seeking planning permission.

In this case, homeowners have protection from third-party enforcement of restrictive covenants that previous owners may have unknowingly breached.

With a title defect policy, you can address property title issues related to missing deeds, boundary disputes, or unclear ownership history.

This policy covers the costs of maintaining a nearby church if the property is liable for such expenses.

A flying freehold policy shields you against complications caused by parts of another property — a freehold, meaning property owned outright — extending or “flying” over your land.

Under this policy, homeowners are financially protected if their property lacks a legal right of way (easement) to access essential services like water, electricity, or drainage.

In the introduction, we mentioned how stressful buying or selling a house can be. The process can be particularly challenging when your property has hidden risks or unforeseen legal complications. Buying an indemnity policy helps reduce worry by providing protection should an overlooked issue arise.

Unlike standard home insurance policies, which are usually renewed annually and paid monthly, you only pay for indemnity policies once. That payment covers the property indefinitely.

The buying and selling process is often complicated. Should any issues arise, your indemnity insurance policy can resolve concerns and keep the sale on track.

Although it’s always a good idea to resolve legal issues or fix property defects, associated costs can be prohibitive. Indemnity insurance can be an effective alternative when you can’t fix the problem easily.

Don’t consider buying indemnity insurance as a shortcut to paying for repairs. Indemnity insurance doesn’t cover the cost of fixing known issues. It only covers financial losses caused by the problem.

Certain conditions can invalidate home insurance, and the same applies to indemnity insurance. You may no longer qualify for indemnity cover if you have disclosed legal problems or defects to third parties, such as your local authority.

Although indemnity insurance should cover most of the problems listed above, there’s a limit. Check your policy’s terms and conditions thoroughly to understand what is covered. In addition, be aware of all financial caps on legal fees and associated costs.

If the risk of property defects is minimal and unlikely to result in costs, paying for indemnity insurance may not offer any value.

Homeowners should purchase home and contents insurance, especially since mortgage lenders often make it a loan requirement. However, indemnity insurance is not universally recommended and isn’t always necessary.

Whether you need indemnity insurance depends entirely on your circumstances. An indemnity policy can smooth over potential issues during a sale, like missing paperwork or anticipated legal risks. If you’re buying or selling a property with a known defect, indemnity insurance might be a smart solution to ensure the sales process runs smoothly.

However, you might not require it if known or expected issues don’t exist. Speak to your solicitor. They can offer expert advice specifically related to your property’s condition.

Indemnity insurance covers the property owner’s financial obligation and the following people:

You’re protected against financial loss if you have indemnity insurance for an issue that causes problems.

The good news is most policies are easily transferable. An existing indemnity insurance policy will protect any future buyer of your property and can help finalise a sale should any sticking points emerge.

A majority of house buyers require a bank loan to purchase their property. Indemnity policies can reassure mortgage lenders that the property is a secure investment.

Because indemnity insurance is specific to your property’s circumstances, related costs can be wide-ranging. Standard out-of-the-box policies for missing building regulations or restrictive covenants typically cost between £50 and £300.

For complex or high-risk issues related to shared access or unapproved extensions, costs can be closer to £1,000. The sum will also take your property value into account.

Note that, unlike home insurance, you won’t have the option to pay in monthly chunks. Instead, you’re required to pay the entire cost in one payment. In most cases, the policy doesn’t expire and doesn’t need renewal. It also doesn’t include VAT, so the quoted price is usually the total cost. However, if the value of your house increases significantly, the price may go up.

Contact your solicitor if you intend to buy an indemnity policy or need more detailed information. They will be able to assess the specific risks to your property and offer advice. They can then recommend the type of policy best suited to your home. In some cases, your solicitor may contact you first, usually following searches or surveys.

You can arrange indemnity insurance through a specialist insurer, and you’ll want to compare quotes to ensure you’re getting the best deal. It should take only a few days to get your indemnity insurance in place, though it depends on the circumstances and complexity of your application.

If you know of a structural defect or potential legal issue but don’t have an indemnity policy, you’re at risk of a significant financial setback. You might face potential council fines, legal disputes, or loss of property value.

Yes, it’s common to negotiate. During the conveyancing process, speak to your solicitor about negotiating terms regarding whether the buyer or seller (or a combination of both) pays for the indemnity policy. If the issue relates to a defect that existed before the sale, it is typically the seller’s responsibility to resolve it. However, a buyer keen to avoid delays may agree to pay all or part of the costs.

You’re unlikely to be approved for indemnity insurance if third parties know of legal issues or property defects, especially if a party is likely to challenge or make a claim. Most indemnity policies require the problem to be unknown to local authorities. If, for example, a neighbour has already raised objections to a right of way or access issue, you may struggle to purchase indemnity insurance related to the matter.

No. Indemnity insurance won’t cover defects or issues that develop after the policy is in place. It will only cover risks that existed before you took out the policy. An example might be costs arising from enforcement action for planning permission or a breach of building regulations that occurred before someone purchased the policy.

Fixing the issue might draw attention, which means insurers can void the policy. Companies provide cover based on unresolved problems. For example, you’ll want to consider this before applying for retrospective planning permission.

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