What is indemnity insurance in a house purchase?
A one-off insurance policy bought during conveyancing to cover the financial consequences of a legal defect, instead of fixing the defect — and it is a workaround, not a solution.
What it does. It pays out if someone later enforces a right or takes action arising from the specific problem, covering loss of value, legal costs and in some cases the cost of remedial work. It is paid once, lasts indefinitely, and passes to successors in title including your lender.
Common types:
Lack of building regulations or planning consent for past work, where documents cannot be found.
Restrictive covenant indemnity, where a covenant appears to have been breached and the beneficiary cannot be traced or asked.
Absence of easement — no documented legal right of access, drainage or services.
Chancel repair liability.
Possessory title, where title is not absolute.
Missing landlord for leasehold matters.
Why it is used. It is cheap and instant compared with the alternatives: a retrospective regularisation application, tracing and negotiating with a covenant's beneficiary, or a formal consent. A transaction that would otherwise stall proceeds the same week.
What it does not do, which is the part buyers misunderstand:
It does not fix anything. The defect remains. The work is still unauthorised; the covenant is still breached.
It does not make unsafe work safe. A policy covering absent building regulations says nothing about whether the electrics or the beam are adequate. That is a question for a survey.
It pays money, it does not prevent enforcement.
The critical practical rule: do not approach the council or the covenant's beneficiary. Making contact typically invalidates the policy and may make cover unobtainable for anyone, because the insurer is pricing the risk that nobody notices. Buyers routinely destroy their own indemnity by ringing the council to ask a reasonable question.
Who pays. Usually negotiated — frequently the seller, since they created or inherited the defect.
When to refuse it. Where the issue is structural or safety-related, where the work is recent enough to regularise properly, or where the defect affects what you actually want to do with the property.
General information, not legal advice.