Building insurance

What is building insurance?

Building insurance is designed to help you cover the cost of repairing or replacing the physical structure of your property if it is damaged by an insured event such as a storm, fire or burglary. A home-only insurance policy may include cover for damage to the main dwelling, as well as some permanently-attached fixtures; such as garages, fences, solar panels and hot water systems.

It is important to understand that home building insurance only covers the structure of a property and not the items inside. For these to be covered, you will need to take out contents insurance. Building and contents insurance are two different kinds of insurance, but they are often taken out together, and insurance providers may offer discounted premiums to customers who combine the two.

How does building insurance work?

When taking out building insurance, one of the most important questions you’ll be asked by the insurer is the value that you want to insure your property for. This is what’s known as the ‘sum insured’. It’s the maximum amount that the insurance provider will contribute towards the cost of rebuilding your house if it is destroyed. This includes materials, labour and replacement of fittings and fixtures.

As an alternative to a policy based on a sum insured amount, some insurance providers will allow you to select ‘total replacement cover’. Where ‘sum insured’ cover makes it your responsibility to determine the cost of rebuilding, total replacement insurance covers the cost of rebuilding your home to the same standard as it was before it was destroyed.

The Australian Government’s Moneysmart website cautions that while you are less likely to be underinsured with total replacement cover than with sum insured cover, few insurers offer it. It’s also likely to be the more expensive of the two options.

When you take out home building insurance, an excess will apply to your policy and many providers allow the policyholder to decide how high it will be. The excess is an amount you will need to pay if you make a claim, and must be paid before your insurance provider pays out any money. A lower excess may mean you pay higher premiums, but it would also mean that you will need to pay less in the event that you have to make an insurance claim.

What does building insurance cover?

Building insurance is designed to cover the policyholder for a variety of risks. In general terms, ‘insured events’, or the types of events that you can make a claim for if they cause damage, include such things as:

• floods
• storms and storm surges
• lightning
• fires
• earthquakes and tsunamis
• theft or burglary
• escape of liquid
• impact (such as from falling trees)
• damage by animals (not your pets and not vermin or rodents)
• explosions
• riots and civil commotions
• malicious acts of vandalism

The specific things you are covered for will depend on your provider, so if you are considering taking out insurance for your home, it is worthwhile to read the product disclosure statement (PDS) and target market determination (TMD) to find out exactly what you are covered for.

It is also worth keeping in mind that the definition of a flood can vary from provider to provider, and some include it as standard whereas some will require you to take it out as an optional extra if you want it. Our guide to flood insurance explains more about how this works.

Depending on the insurance provider and the type of coverage you take out, cover may include:

• Rebuilding costs: if you need to rebuild all or part of your property due to damage caused by an insured event, home insurance can contribute towards the cost. Some insurance providers may provide an extra benefit (in addition to the sum insured) to pay fees for professionals such as architects, engineers and lawyers.
• Cover for legal liability: if you are found liable to pay compensation to someone because they suffered accidental injury, death or property damage while in your home, building insurance can provide legal liability cover to help cover your costs.
• Alternative accommodation: if an insured event, (like a storm or fire) damages your property to the extent that it is uninhabitable, building insurance may cover the cost of rental accommodation for a period of time—for example, up to 12 months depending on the policy.
• Boarding for your pets: in some cases, insurance providers may offer a payment for the boarding of your pets in a commercial boarding establishment if your house becomes uninhabitable.
• Removal of debris: if parts of your house are damaged or destroyed by an insured event, then building insurance can potentially pay for the removal of debris.
• Replacement of locks or cylinders: if your house is broken in to and you have a reasonable belief that your keys have been copied, building insurance may cover the cost of replacement locks for external doors or windows.
• Making your house more green: if your house is destroyed by an insured event and requires rebuilding, some insurance providers may pay an extra benefit (in addition to the sum insured) to help you rebuild a more energy efficient home, paying money towards systems such as rainwater ranks and solar power systems.

What optional extras can I get through building insurance?

Most insurance providers will offer additional cover options you can include to your insurance policy but usually at a higher premium cost. Some optional extras commonly offered include:

• Accidental damage cover: many standard insurance policies do not include accidental damage cover, and it will need to be included as an optional cover if you wish to be able to make a claim for.
• Flood cover: since the definition of flood can vary from provider to provider, flood cover will be offered as an optional extra by the providers that don’t have it as part of its standard building insurance policy.
• Motor Burnout cover: this cover allows you to claim for damage or loss of electrical appliances from motor burnout in your house. When it is not offered as part of a standard insurance policy, providers will often include it as optional extra.
• Domestic worker’s compensation: this type of cover protects you in the event of a compensation claim from someone that is injured while working in or about your property. Although many policies include public liability insurance, it often only covers visitors to your house and not employed individuals that work on your property.

What does building insurance not cover?

Building insurance does not cover your belongings. For this you will need a contents insurance policy. Common exclusions, restrictions, and situations where you will not be covered with your building insurance include:

• Leaving your property vacant: some insurance providers will not cover a property if it sits unoccupied for a period of time, which can be between 60 or 90 consecutive days, depending on the provider.
• Failing to secure your property: if you have not taken reasonable steps to secure your property from a break-in, your provider may reject your claim.
• Flood damage: it is important to understand that flood damage does not always come as standard with contents insurance, meaning you may need to purchase it as an optional extra. Even if it is included, it may only extend to certain types of flood damage. It is therefore important to read your PDS and check with your insurance provider about exactly what you’re covered for.

If you want to know more about what may not be covered, you can read about other common home insurance exclusions.

Do you need building insurance?

It is not a legal requirement to have building insurance, but if you are purchasing a property using a home loan, it’s likely that the lender will require you to have home building insurance (with a minimum sum insured amount) as a condition of approving the home loan. Even if this is not the case, you may wish to take it out for your own peace of mind.

If you are purchasing a property, the rules on when you will become responsible for damage to the property differ state by state. In some parts of Australia, this happens on settlement day, but in others, it is as soon as contracts are signed. It is therefore important to understand when you will need to have building insurance in your state or territory in order to be covered.

Who offers building insurance?

A wide array of insurance providers throughout Australia offer home building insurance. You can use the table at the top of the page to compare policies on Canstar’s database. Change the filters to suit your needs.

If you are looking to compare building insurance, you could consider Canstar’s Home and Contents Insurance Star Ratings and Awards, which recognise insurance providers who offer outstanding value to Australians across each state and territory.