The insurance market can be a minefield these days, and knowing which policies you should take out, renew, or avoid can be tricky. During the process of buying or selling a house, your conveyancer may suggest indemnity insurance.
What is it, though, and is it something you need?
What is indemnity insurance?
Indemnity insurance is a policy that is taken out to protect you from specific potential problems that could cost you a lot of money in the future. For example, when buying a property, if the seller is unable to provide you with a building regulation certificate, an indemnity insurance policy will help cover any potential costs. You will then be protected from any costs should a local authority pursue a claim because you don’t hold the certificate.
However, it is important to note that indemnity insurance does not cover costs to repair or replace items.
What does indemnity insurance cover?
An indemnity insurance policy is used when there is a legal defect within a property that cannot be resolved, or where it can, it would be extremely costly and potentially take a substantial amount of time.
So, where you would normally be covered and use an insurance policy to aid with the costs of replacement items, indemnity insurance doesn’t fix the problem but does cover you against an expensive bill in the future.
Commonly, an indemnity insurance policy will cover items that are low risk, but should there be a fault, the cost to fix would be substantial.
- Indemnity insurance compensates for policyholder losses.
- Protects professionals, especially in legal and financial sectors, when at fault.
- Mandatory for roles like financial advisors and attorneys.
- Examples include medical malpractice and errors and omissions insurance.
Who to speak to about indemnity insurance?
Insurance Broker or Agent
This is often the first point of contact for many people. They can guide you through the different policies available, answer any questions you may have, and provide quotes. A broker typically works with multiple insurance companies, giving you a wider range of options, whereas an agent may represent a single insurer.
Insurance Companies Directly
Some insurance companies sell policies directly to customers. You can contact them via their customer service departments or through their websites.
If you’re in a particular profession (e.g., doctors, lawyers, architects), there may be a professional association or body that offers or recommends specific indemnity insurance products tailored to the profession’s needs.
Financial or Legal Advisor
They can provide advice on the type and level of indemnity insurance you might need, especially if you’re running a business or offering professional services.
These websites allow you to compare different insurance products based on your requirements. They can be a useful starting point to understand what’s available in the market, but always be sure to do thorough research and read the terms and conditions before deciding.
Regulatory or Governing Bodies
In certain professions or sectors, there may be regulatory bodies that mandate a certain level or type of indemnity insurance. They can provide guidance on what’s required.
Once you’ve decided to inquire or purchase, you should always:
- Read policy terms and conditions carefully.
- Ensure you understand any exclusions or limitations.
- Clarify any doubts you have with the insurer or broker.
- Regularly review your coverage to ensure it remains appropriate for your needs.
Indemnity insurance can be complex, and the right coverage will depend on your specific needs and risks. It’s crucial to seek expert advice to make an informed decision.
Common indemnity insurance policies
There are a variety of policies that may be suggested to you, so it is important you liaise with your conveyancer to see what may be necessary.
Planning permission insurance
This type of indemnity insurance policy is suggested if your house has had alterations made without planning permission, or where there is no proof that alterations were made within the permitted development rights. Taking out an indemnity policy would cover you from the risk of enforcement from local authority. It would also help with any missing regulation certificates.
If you sell your house but are unable to provide any boiler installation certification, you can get an indemnity insurance policy to cover it. Supplying a gas safety certificate provides an element of security to the potential buyer as it reassures them of the operational quality of the boiler. Providing this would also mean you do not need to look at taking out an indemnity policy.
When you are buying a house, it is highly recommended to ask for the safety certificate. Whilst indemnity insurance can cover for some things, it will certainly not cover the cost of repairing or replacing the boiler.
Since 2002, it has been a legal requirement in England to have a FENSA certificate when having new windows or doors installed. If you are missing your certificates, then an indemnity policy will protect you from any costs should action be taken against you for the installations not following regulations.
What else is indemnity insurance used for?
There are a few other times when an indemnity insurance policy would be worthwhile. For example, if you were lent money to help with your deposit and the lender is declared bankrupt, the creditors could look to make a claim on your property. A policy could then protect you from lost value.
In addition, if you must cross someone else’s land to access your property, you should check that the “right of easement” has been granted. If it hasn’t, an indemnity policy protects you from loss of value.
If you happen to live near a church, you could find yourself paying for chancel repairs. An indemnity policy would cover these costs for you.
How much does indemnity insurance cost?
Indemnity insurance will vary and is calculated based on the value of your property and what the policy will cover. You could pay as little as £20, or as much as £300. It all depends on the type of policy you choose. Indemnity to cover a building that does not have the correct certificates can cost a few hundred pounds, whilst a chancel repairs policy is much cheaper.
You can’t get indemnity insurance without a specialist company providing it, so you will be presented with the quote by your conveyancer.
Who pays for indemnity insurance?
Paying for indemnity insurance can be done by either party, the buyer or the seller – there are arguments for both. With the policy helping the buyer, many think it should fall under their remit. They will be the ones living there and can make decisions on whether the risks require indemnity protection. On the other hand, the issues could be a result of the current owner not doing something properly. This is where people believe the selling party should foot the bill.
Occasionally the cost will be split, but on the whole, as the insurance is there to help push through a sale, the seller will pay.
Can an existing indemnity policy be passed onto a new homeowner?
Yes – the policy is for the building itself. When buying a house, if there is already an indemnity policy attached to it, you will remain protected by it. If the value of the house increases, though, you may have to pay an additional premium.
Is indemnity insurance worth it?
Your conveyancer may well suggest taking out a policy. Before you commit, ask what it is for and do some research. Sometimes a policy is not actually necessary. Remember it is just a last resort to provide cover for a problem that cannot be fixed. These problems may also have a cheaper alternative solution. Look into these before signing up to a policy.