When you are purchasing a home – or are thinking of taking this step in the future – it is important that you put into action any step possible that will help protect you, your property and your investment. From buildings insurance to contents cover, there are a range of products available to help you sleep a bit easier at night.
But what is an indemnity policy? What are the benefits? And do you really need one? Let’s answer your questions so you feel as confident as possible in your level of protection.
What Is an Indemnity Policy?
First, it is important to realise that an indemnity policy is quite different to a buildings or contents policy. That is, it is not going to provide any cover if, for example, a pipe bursts and floods your kitchen or a tree crash through your sitting room. Rather, it is a policy that is purchased (sometimes) during housing transactions. It is a one-off payment that gives you cover if a third party makes a claim about a specific issue related to the property.
It sounds a little complex – and it can be. Basically, indemnity covers you against a specific potential problem that could be quite costly. Like what? Say you are purchasing a property and the seller cannot provide you with a building regulation certificate. In this case, it may be advisable to take out an indemnity policy to cover any costs that could be associated with that issue. If, in the future, your local authority chooses to pursue a claim because you do not have the certificate, you are covered.
You are indemnified, which means you will be compensated for the cost. Unlike a buildings or contents cover, which gives you replacement value, an indemnity policy typically just covers the cost so you are brought back to level.
Again, this type of cover does not protect you if you need to repair or replace anything. Perhaps you took out a policy, for example, because the previous owner of the property could not supply you with an installation certificate for the boiler. If that becomes an issue, you are covered. If, on the other hand, the boiler malfunctions, this policy does not pay to repair or replace it.
This issue is another reason why it is important to have a thorough inspection and survey completed on any property you are considering purchasing. Doing so can save you some costly problems down the road.
Types of Indemnity Policies
There are several different types of indemnity policies, including:
Restrictive Covenant Insurance: Some older properties have deeds with provisions that limit the use of the property in some aspect (these provisions are called restrictive covenants). For example, you must give your neighbours access to a well on your property. If the prior owner has broken the covenant, indemnity insurance will protect you if this becomes a problem.
Planning Permission Insurance: If the prior owner made alterations to the property without planning permissions or outside of permitted development rights, an indemnity policy can help if the local authority takes action. It also covers missing building regulation certificates, as we mentioned earlier.
Indemnity for a Boiler: As a seller, if you cannot supply an installation certificate for the boiler, you can get a policy to cover you.
Windows Indemnity: You should receive a FENSA certificate by the installers when you get new doors or windows. If you do not have this certificate, an indemnity policy protects you if the local authority takes enforcement action because the installation does not comply with building regulations
How Much Does an Indemnity Policy Cost?
It depends on the value of your property and what the policy covers. The cost can range from £20 to £300.
Do You Need an Indemnity Policy?
Again, it depends. It is best to consult with your conveyancer or solicitor to see if you are best suited with such a policy and if there are potential issues with the property that make it a wise move. Not everyone needs indemnity cover – but it’s better to find out during the transaction than later, when a small problem becomes a big, expensive one.
