Home Warranty Insurance: What it covers, costs, and key limitations

It’s home warranty insurance, though it’s often called something else. Common names include home building compensation, home indemnity insurance, and domestic building insurance. 

It ensures homeowners aren’t left out of pocket if their builder fails to complete a project or rectify defects for certain reasons. Here’s how it works:

This insurance is required in most Australian states and territories for residential building projects over a certain cost. It typically provides coverage of non-complete (that is, the project isn’t finished) and defects for around six years or so following its completion. Exact rules, regulations, and insurance products vary between states and territories.

Before signing a contract, ask your builder for proof of coverage.

Key limitations of home warranty insurance

If your builder or contractor abandons the project but hasn’t died, disappeared, gone bankrupt, or lost their licence, home warranty insurance likely won’t cover you – except in Queensland. In such cases, pursuing legal action may be your best option to recover lost funds.

Who pays for home warranty insurance?

The builder or contractor engaged by a homeowner is typically responsible for getting and paying for home warranty insurance. As they’re running a business, builders can be expected to pass on the cost to homeowners, either directly or indirectly.

Only registered builders and contractors working on structural projects over the state-specific cost threshold generally need this insurance. Smaller renovations in which building works don’t meet thresholds may not require coverage – even if other costs (such as additional trades) push it over limits.

If home warranty insurance is needed, it normally needs to be taken out before a builder or contractor takes a deposit or starts work.

How much does home warranty insurance cost?

Just as home warranty insurance differs across the country, so too do its costs. However, it will likely depend on the value of the works a homeowner is agreeing to. 

For instance, a $100,000 contract in Sydney might cost a builder around $1,000 to insure, while a similar renovation in Queensland could cost a little over $900 to cover. 

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Important Information and Comparison Rate Warning

How does home warranty insurance differ between states and territories?

The rules for home warranty insurance vary across Australia. For instance:

• In NSW and Victoria it’s known as Home Building Compensation Fund (NSW) or Domestic Building Insurance (Victoria) and is mandatory for projects over $20,000 (NSW) or $16,000 (VIC).

• In Queensland it’s covered under the Queensland Building and Construction Commission (QBCC) insurance scheme.

• Other states and territories have similar schemes with varying thresholds and requirements.

NSW: Home Warranty Insurance 

Builders and tradespeople in NSW must take out Home Building Compensation Fund (HBCF) cover on any home building project valued at $20,000 or more.

It protects homeowners in the event their builder or tradesperson dies, disappears, goes bust, or has their licence suspended. 

It offers up to $340,000 of compensation for impacted homeowners. 

Victoria: Domestic building insurance 

Victoria demands building contractors take out domestic building insurance – previously called builders warranty insurance – for any works worth over $16,000.

The insurance covers up to $300,000 of costs a homeowner might face if their builder dies, disappears, or goes bust before works are complete or defects are addressed.

Queensland: Home Warranty Scheme 

 Queensland’s Home Warranty Scheme is a not-for-profit insurance setup administered by the Queensland Building and Construction Commission. Most residential building works worth more than $3,300 (inclusive of materials, labour, and GST) must be insured through the scheme. 

Unlike similar insurance products in other states and territories, Queensland builders don’t need to die, disappear, or go bust for homeowners to access coverage. 

Those signing a fixed price contract are covered if their contractor doesn’t, or can’t, finish the project. In some cases, if a homeowner’s claim is accepted and their home is later damaged by fire, storm, vandalism, or theft, related losses will also be covered. Homeowners agreeing to either a fixed price or cost-plus contract are also covered if their contractor doesn’t amend defects or if their home is impacted by subsidence or settlement. 

The Home Warranty Scheme pays out a maximum of $200,000 or up to $300,000 if an owner takes out optional extra coverage.

South Australia: Building indemnity insurance 

In South Australia, builders undergoing projects that both need development approval and cost $12,000 or more must pay for a building indemnity insurance policy in the homeowner’s name.

It protects the owner if their builder dies, disappears, or goes bust before finishing the works. 

The insurance offers protection of up to $80,000 if issued before mid-2017 and up to $150,000 if issued since mid-2017. 

Western Australia: Home indemnity insurance 

Builders undergoing residential works worth more than $20,000 in Western Australia must take out home indemnity insurance on behalf of the homeowner. 

The insurance protects the owner if their builder were to die, disappear, or go bust. 

Insurance policies must provide up to $200,000 of cover for non-completion or statutory warranty and up to $40,000 for loss of deposit. 

Tasmania: Home Warranty Insurance Scheme 

The Tasmanian Government announced it will reinstate its Home Warranty Insurance Scheme in 2024, with the safety net expected to come into effect in mid-2025.

It proposes that building contractors would be required to take out the insurance product for every residential building contract worth more than $20,000.

“The Government’s Home Warranty Insurance scheme will provide important protections to ensure that homeowners are covered for loss caused by incomplete or defective building work should unforeseen circumstances occur, such as where their builder has died, disappeared or become insolvent,” Tasmanian minister for small business and consumer affairs Michael Ferguson said in August 2024.

ACT: Builders Warranty Insurance or Home Owners Warranty 

Builders in the ACT must take out Builders Warranty Insurance – often called Home Owners Warranty – if a residential project requires building approval and costs at least $12,000.

It offers the homeowner up to $85,000 of coverage in the case that their builder dies, disappears, or goes bust.

Northern Territory: Residential building insurance

All builders in the Top End must be registered with a level of coverage through the Fidelity Fund NT each year and secure a certificate of coverage when working on new houses, units of up to three stories, and extensions worth more than $12,000.

The fund is administered by the Master Builders Association Northern Territory and provides up to $200,000 of coverage (no more than 20% of the project’s value) if a homeowner’s builder dies, disappears, becomes insolvent, or has their registration suspended or cancelled. 

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