What exactly is Building Warranty Insurance?
Home warranty insurance is a compulsory form of insurance in most parts of Australia and is designed to provide protection against errors made by builders while constructing their home. Anyone who is building a new home in most regions of Australia needs to have a home warranty insurance policy in place before they sign any contract to perform the work. This type of insurance is acquired by the builder or contractor for the benefit of the homeowner, providing crucial protection against things like failure to complete the work, structural and non-structural defects and breaches of statutory warranties.
Home warranty insurance is sometimes also referred to as home indemnity insurance, builders’ warranty insurance and domestic warranty insurance.
How is builders warranty insurance different across states in Australia?
In Australia, the home warranty insurance regulations vary between states and territories. For example, in NSW, cover for loss arising from any defective work is provided for six years from the date of completion for structural defects, and two years for any other loss. An extra six months worth of cover also applies in situations where the loss becomes known in the final six months of your period of insurance.
As you can see in the table provided a little further down the page, the period of insurance differs around the country, such as in South Australia where structural work is covered for five years. Limits for the minimum amount of cover to be provided by insurers also vary from $80,000 up to $200,000.
Home warranty insurance is commonly referred to as builders’ warranty insurance in NSW, and it provides cover for homeowners and subsequent owners of the insured home. Like in most other states, this form of cover offers a ‘last resort’ for any problems that arise within six years of the completion of work. If the work is either not completed or defective and the builder has disappeared, died or become financially insolvent, builders’ warranty insurance provides protection. Builders need to take out this cover when conducting work for contracts of $20,000 or more.
Domestic building insurance is the moniker imposed on home warranty insurance in Victoria, offering ‘last resort’ cover for homeowners and subsequent owners. If, within six years of the contract being completed, the work is either not completed or defective and the builder has disappeared, died or become financially insolvent, financial protection is provided. Builders in Victoria are legally required to take out domestic building insurance when undertaking works valued at more than $16,000.
In the west, home warranty insurance is usually referred to as home indemnity insurance. If the builder dies, disappears or becomes insolvent within six years of finishing the contract, the homeowner and any subsequent owners are covered for the completion of the work and any loss of deposit. This cover is required for building work in excess of $20,000.
ACT homeowners can enjoy the protection of home warranty insurance on works exceeding $12,000 in value. This insurance covers them and any subsequent owners for six years for the completion of the work and loss of deposit. It kicks in if the builder dies, disappears or becomes financially insolvent.
South Australians refer to this type of cover as building indemnity insurance and it is required for building contracts in excess of $12,000. Completion of work and loss of deposit are covered for five years in case the builder dies, disappears or becomes financially insolvent.
What does it cover?
Depending on the cover you have chosen. Home Warranty Insurance may cover the following events:
- Building work hasn't actually commenced - In the event that building work hasn't started, the insurer may reimburse the deposit that has been paid to the builder/building company under the contract
- Defective work - You may be covered for any additional costs required as a result of defective work
- Builder has defaulted - If your contract has been terminated with your builder due to your builder defaulting before work has been completed, you may be entitled to compensation to complete the project
When may a contract be terminated?
- Builder working as a sole-trader goes bankrupt
- The builders company is placed into administration or liquidation
- The builders licence is cancelled or suspended
What else may I be covered for if my claim is successful?
- Reasonable cost of alternative accommodation
- Reasonable cost of removal and storage costs
What kind of building work can be covered under a policy?
- Construction of new home, townhouse, multiple unit dwelling and other roofed dwellings
- Extensions, additions, alternations to new home, townhouse, multiple unit dwelling and other roofed dwellings
- Replacement of bathroom fixtures or fittings
- Work to verandah and decking
When is home warranty insurance required?
| STATE | MINIMUM VALUE OF WORK | LENGTH OF COVER FOR STRUCTURAL WORK | LENGTH OF COVER FOR NON- STRUCTURAL | MINIMUM COVER TO BE PROVIDED BY INSURER |
| ACT | $12,000 | 6 Years | 2 Years | $85,000 |
| NSW | $20,000 | 6 Years | 2 Years | $200,000 |
| SA | $12,000 | 5 years | $80,000 | |
| TAS | $12,000 | 6 years | $200,000 | |
| VIC | $12,000 | 6 Years | 2 Years | $200,000 |
| WA | $20,000 | 6 years | $100,000 |
F.A.Q
- Is home warranty insurance only available in NSW? No, there are different laws and regulations regarding home warranty insurance in place right around Australia. Contact your state or territory’s consumer affairs or fair trading department to find out the legislation that applies to you.
- Does home warranty insurance cover vandalism? Many insurers will not include this feature in their cover, but speak to your insurer to find out what extra benefits (for example accidental damage) can be added to your policy.
- At what point should a builder provide home warranty insurance? While the exact wording of legislation varies around the country, builders are generally required to take out home warranty insurance before any money changes hands. In South Australia, for example, the insurance must already be in place before the builder accepts any money and before they get a building permit or licence from the local government.
- What does it mean if a builder is only available for contracts not requiring home warranty insurance? This means the builder has not been given eligibility for an insurer and cannot take out home warranty insurance.
- Why should I check that the builder’s name on the contract matches the name on the insurance certificate? You should check this closely because if you fail to do so, the insurance provider will most likely reject your claim.
Steps to a successful claim
- If you want to make a home warranty claim, get in touch with your insurance provider via phone or email. You’ll then typically have to fill out a claim form and provide full details of the reason for your claim
- Next, send the completed form to your insurer along with any supporting evidence or information they may require. This could include copies of the building contract, your certificate of insurance, the plans and specifications for the construction work, proof of payment, consultant reports you may have obtained in relation to the faulty work, and much more
- If you co-operate with your insurer and fulfil all your obligations, your claim will be assessed and processed as quickly as possible
