Indemnity insurance refers to a contract entered into between an insurer and another party under which the insurer is obligated to compensate the other party for any damages covered within the contract. There are two general forms of property indemnity insurance. One type, contractors' protective insurance, is taken out by general contractors when building a house or performing renovations. This covers the property owner if the general contractor becomes unable to complete the work due to death or financial shortcomings, or if the work was faulty. The other type is generally referred to as title insurance, and covers owners and lenders when the title is faulty.
There are two general types of title insurance: owner's and lender's policy. Both generally cover and owner or lender against claims for defects in a property's title. These defects can stem from claims of fraud, forgery, liens, encroachments, easements and other entities claiming ownership. The lender's policy also can protect against claims stemming from inaccurate real estate appraisals. A lender's policies typically is tied into the loan value, and decreases as the loan's balance decreases. Most lenders won't provide a mortgage loan without the borrower obtaining owner's insurance. The lender's policy generally is attached to the mortgage, while the owner's policy is attached to the property. Mortgagees sometimes negotiate the policy fee's inclusion in the property's purchase price.