Home Warranty Insurance
The builder usually pays for home warranty insurance, but you should still understand what’s exactly covered.
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Homeowners who are left with incomplete or defective construction jobs are protected by mandatory home warranty insurance in many parts of Australia. This insurance is purchased by the builder doing the work and kicks in if they can't finish the job for a variety of reasons.
This type of insurance has many different names depending on the state, but we dive into what it is and how it works below.
Home warranty insurance in NSW and WA
Home warranty insurance functions largely the same way in both NSW and WA. The main difference is that it's called "home building compensation" in NSW and "home indemnity insurance" in WA. It has the following features:
- Covers the homeowner for the completion of building work or fixing defects.
- Applies if the builder is unable to finish the work due to death, financial insolvency or disappearance within six years of finishing the contract.
- Any builder or tradesperson is required to take out this insurance for each building project over $20,000. Sub-contractors are covered by the head contractor's cover.
Builders warranty insurance in Victoria
Builders warranty insurance is known as "domestic building insurance" in Victoria. Here's how it works:
- Covers the homeowner plus subsequent owners for incomplete or defective building work.
- Applies if the builder cannot finish due to death, disappearance or financial insolvency within six years of completing the contract.
- Builders are required to take out this insurance for each building project over $16,000.
Home warranty insurance in QLD
In Queensland, home warranty insurance works like this:
- Covers the homeowner for incomplete construction work, defects and subsidence or settlement.
- You must make a claim within three months of noticing the defect for structural issues and within seven months of contract completion for non-structural defects.
- Builders are required to take out this insurance for most residential projects valued above $3,300.
Home warranty insurance in other states like ACT, SA and TAS
Home warranty insurance is mandatory in both the ACT and South Australia for building projects above $12,000, but not in Tasmania or the Northern Territory. It covers homeowners for incomplete construction and structural defects in a similar way to other states.
Summary of the facts
|State||Minimum value of work||Length of cover for structural work||Length of cover for non-structural work||Minimum cover to be provided by insurer|
|NSW||$20,000||6 years||2 years||$340,000|
|VIC||$16,000||6 years||2 years||$300,000|
What is home warranty insurance?
Home warranty insurance is designed to protect homeowners against incomplete building work and defects from construction in residential projects. It is taken out by the builders and tradespeople themselves and is mandatory in many states depending on the value of the build project. This kind of insurance has different names depending on what state you're in, such as builders warranty insurance, so see the above sections for state-by-state breakdowns.
What does builders warranty insurance cover?
Builders warranty insurance is purchased by the builder but is actually meant to protect the homeowner. It offers the following:
- Cover for incomplete or defective building work.
- "Last resort" system, where you can claim only if the builder doesn't complete the work due to death, disappearance or financial insolvency.
- May provide a small extra allowance for alternative accommodation and storage.
This insurance is only mandatory on residential building projects that exceed a certain threshold depending on the state. This threshold stretches from $3,300 in QLD to $20,000 in NSW and WA.
Are there any home warranty insurance exemptions?
In theory, home warranty insurance is a nice idea, but it does come with some limitations that you should be aware of.
- It doesn't protect you from dishonest builders. This means, you generally won't be covered if a builder refuses to repair their work or give you a refund. If this happens, you may need to take the builder to court or the tribunals system for your state at your own expense.
- In-built cap regardless of the building project. You'll only be covered for a maximum of 20% of the contract price in the event of a successful claim.
- Cover for residential projects only. This means it won't cover commercial buildings.
How to get home warranty insurance for builders
The process for purchasing home warranty insurance differs from state to state, although there are some similarities. In all states, you'll only be purchasing it if you're a builder or tradesperson doing residential building work.
Generally, you'll need to do the following:
- Ensure you have the correct documents and applications to prove your eligibility to an insurer.
- Purchase your policy through your state's provider or an insurance broker. Links to brokers, policy providers and home warranty insurance info for each state are listed at the bottom of this section. The price will depend largely on the value of your building contract.
- Keep your policy documents handy.
|State||What you need to do|
|New South Wales||All home building compensation insurance is purchasable from icare HBCF through an approved broker. You can find more info at the State Insurance Regulatory Authority.|
|Western Australia||To access the process for getting your building work approved and insured, go through the government's Building and Energy website.|
|South Australia||Building indemnity insurance has to be secured from one of the few approved insurers through your insurance broker. To see the process and list of insurers, see the South Australian Government Financing Authority's website on the matter.|
|Victoria||Domestic building insurance is handled through the VMIA, which has a short approved list of authorised distributors.|
|Queensland||To find out about purchasing home warranty insurance, see the Queensland Building and Construction Commission's page.|
|Australian Capital Territory||For information on obtaining home warranty insurance in the ACT, visit the Environment, Planning and Sustainable Directorate site.|
Is it time to look at your home insurance?
Whether you're buying your first home insurance policy or looking to switch from your existing one, it always pays to compare. You can choose up to four policies at a time, select "Compare" and view the benefits side-by-side to make sure you get the right cover.
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