Questions: Indemnity insurance
What does hidden damages mean? What damage can you get covered, and how long does indemnity insurance cover you for?
Find out what indemnity insurance covers and get some advice on what to do before, during, and after a claim when you file one.
Please note that IDA does not offer indemnity insurance. If you need an insurance quote, contact our partner FRIDA Insurance Agency.
What is indemnity insurance?
Indemnity insurance covers the buyer and the mortgage lender in the event of any loss of value on the property as a result of the defect.
What is the difference between building and indemnity insurance?
The primary difference is that the building insurance covers damage that may occur after you take over the house. For instance, if your house has been damaged by storm or heavy rain, it is your building insurance that covers. Indemnity insurance, on the other hand, covers damage that was on the house prior you took it over. For example, there may be illegal plumbing or electrical installations installed by the previous owner.
What does indemnity insurance cover?
The Indemnity insurance covers the repair of hidden defects in the house, when the defining conditions of the term damage are present. It gets a little technical here, but when parliament originally defined change-of-ownership insurance, a defect was defined as:
or destruction of the building or other physical conditions that significantly reduce the house’s value or utility compared to similar buildings of the same age and in a generally good state of repair.
It is a condition that the defect is present on the takeover date. Roof defects, subsidence damage and illegal electrical and plumbing installations are some of the most common defects we experience in indemnity policies.
What is not covered by the insurance?
What is a hidden defect?
Errors and defects that are not described in the condition and the electrical installation reports are regarded as hidden. For you as a buyer, this means that you are not fully aware of the house's condition and defects. In these cases, a Indemnity insurance policy is particularly attractive, precisely because it covers hidden defects. Without indemnity insurance, you have to cover all the expenses associated with correcting the hidden defects yourself.
How long does an indemnity policy last?
You can choose a five-year or ten-year cover. If you pick the five-year cover, you can further extend the duration of the insurance by five years, providing you do this five days before the expiry date, at the latest. Remember that it’s cheaper to buy a ten-year cover rather than extend the cover, which is generally five years.
Does the insurance cover all faults and defects not named in the reports?
No, it doesn’t. It is a widespread myth, both online and among some organisations and companies who regularly advise on indemnity insurance. Indemnity insurance only covers hidden defects if such defects cause damage, or if there is a high risk that it will cause damage that significantly reduces the building’s value or function in relation to similar buildings of the same condition and age.
Differences between indemnity insurance?
All insurance providers tend to offer the same basic cover for indemnity insurance, as it is the government who has decided what it should cover. This is regardless of whether you choose a five or ten-year cover. However, some companies offer additional cover to supplement their indemnity insurance.
What does indemnity insurance cost?
Premium varies from company to company. That’s why it’s a good idea to get several quotes. It is not only important to compare prices, but also the clauses each company may have added as part of the actual house sale.
The seller is obliged to pay half the price of the quote, which the estate agent puts together with the purchase agreement. As a buyer, you are entitled to get more quotes and to pick a different insurance company. If you choose a more expensive indemnity insurance, the seller is only obliged to pay half the quote provided by the estate agent.