Understanding indemnity cover

There are many ways in which a home insurance claim can be settled, and the option your insurance provider chooses will largely depend on the nature of your claim, your personal circumstances and the type cover you have purchased.

For AA Insurance customers, we can settle your claim in three different ways:

• Replacement cover

• Sum insured cover

• Indemnity cover.

We’ve covered the basics of the first two options in other blogs, so here’s an explanation along with a few examples to help you understand what it means when we settle your claim using indemnity cover.

What is indemnity cover?

At AA Insurance, we may settle your claim using indemnity cover if you won't be repairing or replacing the damaged part of your home, or if we haven't been able to agree on the reinstatement costs with you within 12 months of the date of the loss. Indemnity cover means we will pay the lowest value of the following:

• market value, that it is the value of your home excluding land, immediately prior to the loss, as determined by an independent registered valuer appointed by AA Insurance;

• a depreciated repair or replacement cost, as assessed by an independent registered valuer;

• your sum insured, which you and your insurance provider agree to when you first purchase insurance.

Indemnity cover doesn’t include costs for demolition or the removal of debris.

Examples of indemnity cover

Amaia’s boundary fence was damaged in a storm. She had been in talks with a developer, who was interested in buying up her property, as well as the one next door. As she was intending to sell, she wasn’t interested in reinstating the damaged portion of the fence. As her insurance provider, we settled her claim using indemnity cover. We paid her the depreciated repair cost for her share of the fence.

Joshua’s home was severely damaged in a fire. Rather than rebuilding the home to the same specifications, Joshua decided to take the opportunity to move to Australia and sell the land his home was on. As his home insurance provider, we settled the claim using indemnity cover as he was not intending to rebuild his home. The market value of his home was the lowest value of the three listed above, so his settlement amount was based on the current market value of his original home minus his total applicable excess.

Key takeaways

Depending on the cover you've chosen, indemnity cover is one way in which your home insurance claim may be settled. At AA Insurance, we may choose to settle your claim using indemnity cover if you don't want to repair, replace or rebuild the damaged portion of your home, or if we have been unable to agree on the reinstatement costs with you within 12 months of the loss. It's important to carefully review your policy and understand the terms and conditions of your cover, including any limitations or exclusions that may apply. For AA Insurance customers, you can find more information about indemnity cover in the ‘How we settle your claim’ section of your policy document.