can someone explain what indemnity insurance does?

aoleks

hi all,

I thought I understood indemnity insurance policies, but some things don't add up.

let's imagine a case of a structural alternation (extension or garage) ignoring a restrictive covenant or simply not having planning permission (let's say PP is required for that modification). if I was to buy that property, my solicitor would advise me to get indemnity insurance, in case something goes wrong.

now let's say I get approached by the council, for example, in relation to said structure. how exactly is an indemnity insurance going to help me if I have to demolish the extension, for example? I understand that it will cover the costs (incl. legal costs), but at the end of the day, I'm left without an extension. it's not just the cost of demolishing it, but the loss of property value, saleability etc.

what does an indemnity insurance do, more precisely?

thanks

AdrianC

It gives you a little hug in the form of some fairly useless paperwork. Not much more.

Remember, these insurance policies cost a hundred quid or sometimes less, and last indefinitely. What does that say about the insurer's perception that there will ever be a payout?

user1977

The insurers would do what they can to defend the action, but ultimately they will cover you for any loss in value to the property if you were forced to remove the extension. But the point is that they will only cover enforcement action by building control, or the beneficiary of the covenant, etc. Not eg you choosing to rebuild the extension because you discover a structural problem. 

Lumiona

Thanks for this, we've just had to pay for this for a property we are selling and I couldn't understand what it actually covered for.

maisie_cat

AdrianC said:

It gives you a little hug in the form of some fairly useless paperwork. Not much more.

Remember, these insurance policies cost a hundred quid or sometimes less, and last indefinitely. What does that say about the insurer's perception that there will ever be a payout?

Spot on, ours will provide a new driveway access in case the unknown owners of the strip of land that this house has used for 120 years suddenly decide they want to prevent access.
The chances of that happening are virtually nil, but it covers backsides

eddddy

aoleks said:

let's imagine a case of a structural alternation (extension or garage) ignoring a restrictive covenant or simply not having planning permission (let's say PP is required for that modification). if I was to buy that property, my solicitor would advise me to get indemnity insurance, in case something goes wrong.

More often - your solicitor might advise you to get indemnity insurance simply to satisfy your lender.

Here's a simplified example of when people resort to indemnity insurance... an extension was built 10 years ago without planning consent or building regs sign-off.

• The planning authority can only take enforcement action for lack of planning consent (e.g. force you to knock it down) within 4 years of completion - so that time limit has passed. No planning enforcement action is possible.

• The Building Control department can only take enforcement action for failing to meet building regs (e.g. make you rebuild bits) within 1 year of completion - so that time limit has passed. No building control enforcement action is possible.

So, if you can prove to your lender's (and their solicitor's) satisfaction that the extension was built 10 years ago, so no enforcement action is possible, there should be no problem. So that might involve days or weeks of gathering evidence - builders invoices, dated photographs, witness statements, etc.

But it might just be simpler to pay £100 or less for indemnity insurance instead - to make the problem go away.

Thrugelmir

aoleks said:

what does an indemnity insurance do, more precisely?

Protects your lender. As it's their money that you are using to buy the property.  The property needs to provide adequate security for the debt in the event of default, and a quick firesale being the optimal exit route.

Jeepers_Creepers

user1977 said:

The insurers would do what they can to defend the action, but ultimately they will cover you for any loss in value to the property if you were forced to remove the extension.

So it does have a potentially useful value in some situations?

user1977

Jeepers_Creepers said:

user1977 said:

The insurers would do what they can to defend the action, but ultimately they will cover you for any loss in value to the property if you were forced to remove the extension.

So it does have a potentially useful value in some situations?

Yes, where the type of event insured against actually occurs. Planning and building regs enforcement is immensely unlikely (and often impossible anyway), I've only ever encountered claims being made for the adverse possession and right of way type of policies. 

Shaztastic3000

eddddy said:

aoleks said:

let's imagine a case of a structural alternation (extension or garage) ignoring a restrictive covenant or simply not having planning permission (let's say PP is required for that modification). if I was to buy that property, my solicitor would advise me to get indemnity insurance, in case something goes wrong.

More often - your solicitor might advise you to get indemnity insurance simply to satisfy your lender.

Here's a simplified example of when people resort to indemnity insurance... an extension was built 10 years ago without planning consent or building regs sign-off.

• The planning authority can only take enforcement action for lack of planning consent (e.g. force you to knock it down) within 4 years of completion - so that time limit has passed. No planning enforcement action is possible.

• The Building Control department can only take enforcement action for failing to meet building regs (e.g. make you rebuild bits) within 1 year of completion - so that time limit has passed. No building control enforcement action is possible.

So, if you can prove to your lender's (and their solicitor's) satisfaction that the extension was built 10 years ago, so no enforcement action is possible, there should be no problem. So that might involve days or weeks of gathering evidence - builders invoices, dated photographs, witness statements, etc.

But it might just be simpler to pay £100 or less for indemnity insurance instead - to make the problem go away.

This doesn’t answer the question though

Shaztastic3000

Thrugelmir said:

aoleks said:

what does an indemnity insurance do, more precisely?

Protects your lender. As it's their money that you are using to buy the property.  The property needs to provide adequate security for the debt in the event of default, and a quick firesale being the optimal exit route.

This doesn’t answer the question - *how* does it protect the lender?