Home warranty insurance can protect homeowners if their builder goes under, disappears, or dies and they’re left with an unfinished job or sub-par work.
In most of Australia, home warranty insurance is legally required for residential building work valued over a certain amount. However, the rules and what’s covered may differ between states or territories.
What is home warranty insurance?
Home warranty insurance insures homeowners against incomplete or defective building work. In many parts of Australia, home warranty insurance operates as a ‘last resort’ measure because it will only provide cover in limited circumstances.
“Where your builder has died, disappeared, become insolvent or, in some jurisdictions, failed to comply with a tribunal order or licence condition, home warranty insures the homeowner against non-completion of the building contract or defective works for a specified period,” a spokesperson from the Housing Industry Association (HIA), a provider of home warranty insurance, told Canstar.
In Queensland and Victoria, the scheme provides broader home owner warranty insurance protection as there is no requirement that the builder has died, disappeared, or become insolvent, only that they either don’t complete the work under a building contract or fail to fix defects in their work.
The name of the scheme can also vary state to state. For example, in New South Wales it is known as ‘home building compensation’ cover and in Victoria it is called ‘home warranty insurance’.
Do I need home warranty insurance?
In all states and territories except Tasmania, it is a legal requirement to have home warranty insurance in place for residential building work over a certain value. This may include if you are building a new home or renovating your home.
Based on current legislation, you will need home warranty insurance in the following circumstances:
- NSW – residential building work over $20,000
- Victoria – residential building work over $20,000
- Queensland – residential building work over $3,300
- WA – residential building work over $20,000
- SA – residential building work over $20,000
- ACT– residential building work over $12,000
- NT – residential building work over $25,000
It is the builder’s responsibility to purchase home warranty insurance, explained HIA’s spokesperson.
“If you are a licensed builder dealing directly with homeowners and you undertake work that is required to be warranted in your state, then you must purchase home warranty insurance prior to the commencement of work,” the spokesperson said.
The builder will then pass the cost of the insurance onto the homeowner. Premiums will vary depending on the builder, the job and your location, the HIA spokesperson noted.
For homeowners, it’s generally important to make sure the builder shows you proof of cover before they start work. For example, in New South Wales, builders must give homeowners proof of cover before they start work or ask for any payment or deposit.
How does home warranty insurance work?
While it is called different things in different parts of the country, home warranty insurance effectively works the same way in most states and territories where it’s required, as a form of ‘last resort’ protection for homeowners if their builder can’t complete or remedy required work due to death, disappearance, or insolvency. The exemptions are Queensland and Victoria, where a builder doesn’t need to have died, disappeared, or gone insolvent.
As a homeowner, you will not need to take out home warranty insurance. It’s the responsibility of the builder. That said, after taking out home warranty insurance, the builder may then pass the cost of the premiums on to the homeowner.
What does home warranty insurance cover in different states and territories?
In the event that the job is incomplete and the homeowner can’t pursue the builder due to one of the reasons mentioned above, the homeowner can then claim on their home warranty insurance, to cover the cost of necessary repairs or finishing the job.
The exact details of what home warranty insurance covers will depend on your circumstances. The amount of coverage will vary depending on the state or territory.
Here is a comparison of the different requirements, based on current government information:
New South Wales
- Known as home building compensation (HBC) cover.
- Insurance covers a minimum amount of $340,000.
- The period of cover is
- six years after the completion of works for major defects; and
- two years after the completion of works for non-major defects.
Victoria
- Known as home warranty insurance (previously domestic building insurance).
- The insurance covers up to the amount of $400,000, including up to 30% of the building contract price for incomplete works.
- The period of cover is
- six years after the completion of work or termination of the building contract for major defects; and
- two years after the completion of work or termination of the building contract for other defects or non-compliant work.
Queensland
- Known as home warranty insurance.
- The insurance covers up to the amount of $200,000. However, homeowners have the option of purchasing additional cover up to $300,000.
- The period of cover is
- six years and six months from the date of payment of the premium, the date the contract was entered into or the date work commenced (whichever is earlier) for structural defects and the claim must be lodged within three months of noticing the defect;
- six months after the completion of works if you become aware of a non-structural defect. In this case, the claim must be lodged within seven months of the completion date; and
- two years from the date work starts for non-completion of work claims and the claim must be lodged within three months after the date the contract ends.
Western Australia
- Known as home indemnity insurance (HII).
- The insurance covers up to the amount of $100,000 and up to $20,000 for loss of deposit.
- The period of cover is during the construction period and six years after the date of practical completion, which is the date the building, extensions or renovations are completed and ready to be lived in.
South Australia
- Known as building indemnity insurance (BII).
- The insurance covers up to the amount of $250,000.
- The period of cover is five years after the completion of building work.
ACT
- Known as residential building insurance or housing indemnity insurance.
- The insurance covers up to the amount of $200,000.
- The period of cover is
- five years from the day after the certificate of occupancy was issued.
Northern Territory
- Known as residential building insurance.
- The insurance covers up to the amount of $200,000, including up to 20% of the contract price for incomplete works.
- The period of cover is
- six years after the completion of work for structural defects; and
- one year for non-structural defects.
What does home warranty insurance not cover?
Home warranty insurance typically does not cover you if your builder has simply not completed the work, or not fixed defective work (unless you’re in Queensland). The builder generally must have died, disappeared, or become insolvent to qualify to claim on insurance.
Additionally, home warranty insurance will not cover you for incomplete work or defects that are outside of the period of cover.
It is also different to home insurance, which covers the cost of rebuilding or replacing your home in the event of an insured event such as a fire, flood, or storm.
You can find out more about home warranty insurance through your state or territory authority. To make a claim, contact your insurance provider. You should be able to find this information by looking at the proof of cover given by your builder.
