Home Warranty Insurance Explained

Home Warranty Insurance Explained

A critical component of homebuilding—and one that many buyers aren't initially aware of—is home warranty insurance. And given how significantly this form of protection varies from state to state, it can be challenging to understand it properly. In this guide, we'll cover what home warranty insurance is, and what property investors and families interested in new home constructions should be aware of.

What is Home Warranty Insurance?

As already hinted at, home warranty insurance is a protective measure designed to protect homeowners against incomplete building work, or structural issues and defects in newly built properties. However, it is more of a last resort measure than an absolute safeguard. This is because, except in Queensland, the cover only applies if the builder has died, disappeared, or become insolvent.

Is Warranty Insurance Mandatory?

Home warranty insurance is mandatory in all states, excluding Tasmania. Where it is mandated by law it is needed for all residential building work over a certain value. Naturally, this includes new home builds, and in some cases also applies to renovation work. Specific conditions, including when warranty insurance is required, the coverage amount, and the duration of the cover, varies between states. Always check your state's regulations to ensure you know what to look for in the builder's contract.

What Does Warranty Insurance Cover?

Home warranty insurance typically covers costs to repair or replace defective building work or incomplete work where the contracted builder has died, can’t be found, or has become insolvent. The obligation to secure home warranty insurance always falls on the builder, not the homeowner or buyer. The coverage limit and duration, along with what home warranty insurance is known as, vary from state to state.

Victoria

• Known as: Domestic Building Insurance
• Coverage: Structural defects for six years, and non-structural defects for two years from completion.
• Insurance Limit: Required on all residential building work exceeding $16,000 in construction value. Cover is for up to $300,000 on defects and structural issues, and up to 20% of the building contract price for incomplete building work.
• More Information: Victorian Managed Insurance Authority

New South Wales

• Known as: Home Building Compensation Cover
• Coverage: Six years for major defects and two years for other losses, starting from the construction completion date.
• Insurance Limit: Required on all residential building work exceeding $20,000 in construction value. The cover must amount to at least $340,000 or the contract price, whichever is greater.
• More Information: Home Building Compensation Fund

Queensland

• Known as: Home Warranty Insurance
• Coverage: Structural defects for six years and six months, only six months for non-structural defects, and two years for non-completion of work. The coverage period is counted from the date the premium is paid, the contract is signed, or construction starts, whichever is earlier.
• Insurance Limit: Required on all residential building work exceeding $20,000 in construction value. The insurance amount generally corresponds to the value of the contract, with a maximum cover of $200,000.
• More Information: Queensland Building and Construction Commission

South Australia

• Known as: Building Indemnity Insurance
• Coverage: Protection against structural defects for five years from the construction completion date.
• Insurance Limit: Required on all residential building work exceeding $12,000 in construction value. The insurance cover is for up to $150,000 on policies issued on or after 1 July 2017.
• More Information: Consumer and Business Services

Western Australia

• Known as: Home Indemnity Insurance
• Coverage: Six-year cover for all defects from the date of completion.
• Insurance Limit: Required on all residential building work exceeding $20,000 in construction value. Cover of up to $100,000 on building work, and up to $20,000 for loss of deposit.
• More Information: WA Department of Commerce

Australian Capital Territory

• Known as: Residential Building Warranty Insurance
• Coverage: Six-year cover for structural defects and two years for non-structural defects, starting from the date of completion.
• Insurance Limit: Required on all residential building work exceeding $12,000 in construction value. Cover of up to $85,000.
• More Information: ACT Government Planning

Northern Territory

• Known as: Residential Building Insurance
• Coverage: Six-year cover for structural defects and one year for non-structural defects, starting from the date of completion.
• Insurance Limit: Required on all residential building work exceeding $12,000 in construction value. Cover of up to $200,000 on building work, and up to 20% of the contract price for incomplete work.
• More Information: Fidelity Fund NT

What Home Warranty Insurance Doesn’t Cover

Generally speaking, warranty insurance doesn’t cover:

• Defects noticed after the coverage period has ended.
• Defects resulting from unauthorised alterations or additions made to the structure after completion.
• Normal wear and tear or deterioration.
• Issues arising from lack of maintenance.
• Damage or loss of home due to fires, floods, or storms.

Additionally, claims for defects or incomplete work can only be made if the original builder has disappeared, died, or become insolvent.

How to Find a Good Builder

Choosing the right builder is crucial for a smooth and successful homebuilding experience. Measures you can take to assist include:

• Research and Reviews: Start with extensive research. Look for builders with positive reviews and solid reputations.
• Verify Credentials: Ensure the builder has the necessary licenses, accreditations, and insurance cover.
• Check Experience and Past Work: Evaluate their experience, expertise, and look at their previous projects.
• Get Multiple Quotes: Seek quotes from multiple builders to compare prices, inclusions, and exclusions. The cost of the home warranty insurance must be included and listed on the quote.

Your Partner in Building Your Dream Home

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