If you're in the process of purchasing a property, you may come across the term indemnity insurance during the legal checks. Many buyers ask, what is indemnity insurance when buying a house, why is it needed, and whether it's worth paying for.
Indemnity insurance is a common part of residential property transactions, especially in the UK. It helps protect buyers and mortgage lenders from financial losses caused by certain legal defects or missing documentation relating to the property.
In this guide, we'll explain what indemnity insurance is, when it's required, how much it costs, and whether you should agree to purchase it.
What Is Indemnity Insurance When Buying a House?
Indemnity insurance is a one-off insurance policy that protects a homeowner or mortgage lender against specific legal risks associated with a property.
Unlike buildings or contents insurance, indemnity insurance does not cover physical damage to the property. Instead, it covers financial losses that may arise if someone successfully makes a legal claim relating to an existing issue with the property.
The policy usually remains valid for future owners and lenders, making it a long-term solution for certain legal problems.
Why Is Indemnity Insurance Needed?
During the conveyancing process, your solicitor conducts various searches and checks. Occasionally, they discover issues that cannot easily be resolved before completion.
Rather than delaying or cancelling the sale, indemnity insurance allows the transaction to proceed while protecting the parties involved from potential financial consequences.
Mortgage lenders often require indemnity insurance before they approve a mortgage if they believe a legal risk exists.
Common Situations Where Indemnity Insurance Is Used
There are many situations where indemnity insurance may be recommended, including:
Missing Building Regulations Approval
If previous alterations or extensions were completed without the proper Building Regulations certificate, an indemnity policy may protect against enforcement action.
Lack of Planning Permission
If planning permission documentation is missing or unavailable for previous work, insurance may provide protection if the local authority takes action.
Restrictive Covenant Breaches
Some properties have restrictive covenants that limit how the land can be used.
If previous owners breached a covenant—for example by building an extension without permission from the covenant holder—indemnity insurance may be recommended.
Missing Rights of Access
If there is uncertainty over legal access to the property or shared driveways, insurance can protect against future disputes.
Lost Title Deeds
Although most UK properties are now registered electronically, missing deeds can still create legal uncertainty for older properties.
Chancel Repair Liability
In rare cases, homeowners may be liable to contribute towards repairs of a local church. Chancel repair indemnity insurance protects against this risk.
Absent Freeholder
For leasehold properties, indemnity insurance may be required if the freeholder cannot be located.
What Does Indemnity Insurance Cover?
Coverage varies depending on the type of policy but typically includes:
Legal defence costs
Compensation awarded against the homeowner
Reduction in property value caused by the legal issue
Costs associated with resolving the legal dispute
Mortgage lender protection where applicable
The policy generally covers financial losses rather than fixing the underlying problem.
What Doesn't Indemnity Insurance Cover?
Most policies exclude:
It's important to understand that indemnity insurance protects against specific legal risks—not general property problems.
Who Pays for Indemnity Insurance?
There is no fixed rule.
The seller often pays because the legal issue existed before the sale and providing insurance helps keep the transaction moving.
However, buyers sometimes agree to pay, particularly in competitive property markets.
Your solicitor will negotiate this during the conveyancing process.
How Much Does Indemnity Insurance Cost?
The cost depends on:
Typical premiums include:
| Policy Type | Typical Cost |
|---|
| Missing Building Regulations | £30–£200 |
| Restrictive Covenant | £50–£300 |
| Planning Permission | £40–£250 |
| Chancel Repair | £15–£100 |
| Access Rights | £100–£500+ |
Most policies require only a single payment, with no annual renewal.
Is Indemnity Insurance a One-Off Payment?
Yes.
Unlike most insurance policies, indemnity insurance is usually purchased once during the property transaction.
The cover generally lasts indefinitely and automatically benefits future owners and mortgage lenders, depending on the policy terms.
Can You Get Indemnity Insurance After Buying a House?
Yes.
If a legal issue is discovered after completion, it may still be possible to obtain indemnity insurance.
However, obtaining cover becomes more difficult if:
Legal action has already started
The local authority has been contacted
The relevant party has been informed of the issue
This is why solicitors often arrange the policy before completion.
Does Indemnity Insurance Fix the Problem?
No.
One of the biggest misunderstandings is believing indemnity insurance solves the legal issue.
It does not.
Instead, it provides financial protection if someone later enforces their legal rights.
For example, if an extension lacks Building Regulations approval, the policy does not make the extension compliant—it simply protects against certain financial consequences if enforcement action occurs.
Is Indemnity Insurance Worth It?
In many cases, yes.
The premium is relatively low compared with the cost of delaying a property purchase or facing legal claims later.
It can:
Help complete the purchase more quickly
Satisfy mortgage lender requirements
Reduce financial risk
Protect future resale prospects
However, insurance should not replace proper legal advice. Some issues are serious enough that fixing the underlying problem is a better solution than relying on insurance.
Can a Mortgage Be Refused Without Indemnity Insurance?
Yes.
Many mortgage lenders require indemnity insurance before releasing funds if a legal defect presents an unacceptable risk.
Without suitable protection, the lender may:
Your conveyancing solicitor will advise whether your lender requires a specific policy.
Frequently Asked Questions
What is indemnity insurance when buying a house?
It is a specialist insurance policy that protects buyers and mortgage lenders against financial losses arising from certain legal defects affecting a property.
Is indemnity insurance compulsory?
No. However, mortgage lenders frequently require it when specific legal risks are identified during conveyancing.
Who usually pays for indemnity insurance?
The seller often pays because the issue existed before the sale, although buyers sometimes agree to cover the cost during negotiations.
How long does indemnity insurance last?
Most policies provide lifetime cover for the property and continue to benefit future owners and lenders.
Can I refuse indemnity insurance?
You can, but doing so may delay the purchase or cause problems if your mortgage lender requires the policy.
Final Thoughts
Understanding what is indemnity insurance when buying a house is an important part of navigating the home-buying process. While it doesn't repair legal defects, it provides valuable financial protection against specific risks that could otherwise delay or jeopardize your purchase.
If your solicitor recommends indemnity insurance, ask them to explain the exact issue being covered, what the policy includes, and whether resolving the underlying problem is a practical alternative. In many cases, a modest one-off premium can provide long-term peace of mind and help ensure your property transaction proceeds smoothly.