What is home warranty insurance?
Home warranty insurance is designed to protect homeowners if their builder goes under, disappears or dies and they are left with unfinished or sub-par work. Home warranty insurance is a legal requirement in most parts of Australia for residential building work that is over a certain value. However, the rules and what is covered will differ depending on your state or territory. 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, the scheme provides broader protection as there is no requirement that the builder has died, disappeared or become insolvent, only that they either dont 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 domestic building 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  Vic  residential building work over $16,000  Qld  residential building work over $3,300  WA  residential building work over $20,000  SA  residential building work of $12,000 or more  ACT residential building work of $12,000 or more  NT  residential building work over $12,000  It is the builders responsibility to purchase home warranty insurance, explained HIAs 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, its 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. The exact details of what home warranty insurance covers will depend on your circumstances, including the particular scheme in your state or territory, but generally speaking it can cover homeowners for loss arising from completing the building work or fixing any defects from the building work. 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:  NSW 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. Vic Known as domestic building insurance (DBI). The insurance covers up to the amount of $300,000, including up to 20% 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 structural defects; and two years after the completion of work or termination of the building contract for non-structural defects. Qld 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. WA 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. SA Known as building indemnity insurance (BII). The insurance covers up to the amount of $150,000. 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 $85,000. The period of cover is six years after the completion of work for structural defects; and two years after the completion of work for non-structural defects. NT 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. Home warranty insurance typically does not cover you if your builder has simply not completed the work, or not fixed defective work. Except in Queensland, the builder generally must also have died, disappeared or become insolvent to qualify to claim on insurance. This is not a requirement in Queensland. 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 building 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. Cover image source: Romolo Tavani/Shutterstock.com