Home warranties are to protect you against failure by the builder, but not all policies are the same!

Home building is exposed to many risks, of which reliance on the builder to complete the build and the quality to which they execute the works are two major ones. To protect your investment against these, home warranty insurance is mandatory in some jurisdictions.

For those where it is mandatory, proof of payment of the premium is often required prior to issuing a building approval to commence work. Before continuing to read this article, check if a home warranty insurance scheme covers you and what proof of payment you have.

For those not covered by mandatory requirements, you should seek advice on your insurance options to protect you against such risks.

Check to confirm what Home warranty insurance may be called in your jurisdiction, as it can go by several names. Residential Home Warranty, Home Indemnity, Home Owners Warranty, and Domestic Building Insurance are to name a few but are by no means exhaustive.

Home Warranty

What is Home Warranty Insurance
Who pays and how much
Types of claims
How much can you claim
Practical Advice

What is Home warranty insurance?

Home warranty insurance is a policy to protect the consumer on a residential building or renovation project. It is intended to cover the homeowner for loss generally should one of the following events occur:

The contractor dies.
The contractor becomes insolvent.
The contractor disappears.
The works are defective.
Should the policy be triggered for non-completion, it may cover you for fire, storm, vandalism or theft.
If the builder fails to rectify or the rectification work is not up to standards.
The building is affected by structural failure.

All home warranty schemes are different, so you should familiarise yourself with the details of what your policy covers and the triggers to make claims.

There are generally two types of policies, first resort and last resort.

The first resort is where the managing authority will pay you the benefit if they support your claim and pursue the builder for the monies.

Last resort will generally only cover you for death, insolvency, disappearance or loss of license. This type of policy is often fraught with hurdles as it requires legal action to pursue the builder if non of the listed events occurs. Making the issue of getting the builder to return to undertake defects is often costly and time consuming

Who pays and how much?

Generally, the contractor pays the premium that they collect from the homeowner. The cost of which is often included in your total contract price.

The premium to be paid varies depending on the jurisdiction and the value of the work to be carried out. Most policies have a minimum amount of building works value that will trigger the need for a policy to be put in place. Premiums are generally between 0.5% and 1.0% of the contract value.

Generally, payment of the premium is required prior to the commencement of building works or within a specified time frame of signing the contract.

Types of claims

Generally, policies will cover claims for either:

Non-completion
Defective works

Dependant upon the type of contract you have entered into can determine the type of claim that would be covered. The rule of thumb is if it is a fixed-price contract, both claims are generally covered; however, if it is a cost-plus contract, a non-completion claim may not be covered as the insurer cannot quantify the amount of loss due to the unknown final price. As always, check to see how your policy covers you.

How much can you claim?

It is common to find that the value for which you can claim is limited under these policies and does not cover you for the total contract amount. All policies have a differing amount for which you can claim.

The reason is, in simplicity, it is to bridge the cost gap of engaging new builders and works that may need to be remedied. It also works on the basis that work has been completed and that payment has been made, and future works should be covered by payments that have not been paid for incomplete works.

For this reason, you need to ensure that your progress claims reflect the value of work done and don't overpay; otherwise, if something goes wrong, you will be out of pocket, for which your home warranty will not cover you.

Depending on policy details, you may be able to include accommodation, storage and removal costs.

Practical Advice

Home warranty insurance often provides people with a degree of comfort when signing their contract; however, making a successful claim may not be as easy as it is initially made out, particularly for defect rectification works. This is more so for jurisdictions that have a last-resort type policy.

Should your builder become insolvent, this is where you are likely to obtain the best value for it.
To protect your investment and ensure you can claim successfully should the need arise:

Ensure you have a copy of the policy and confirmation of payment.
Keep records of issues, both written and photographic.
Check the timing of both structural and non-structural as they often have different time limitations for claims and notification from when first identified.
Check the process to make a claim under your policy to ensure you do not void your right to claim.
Seek legal and industry specific professional advice should you need to make a claim against your policy.
Ensure you don’t overpay on progress claims to avoid being out of pocket if you need to claim.

Home warranty insurance is one of those things that you hope you will never have to call upon and a necessary evil of home building. If you do need to claim against it, ensure you are familiar with the detail and seek professional advice to protect your investment.

If you need more help navigating your home build journey, check out Dreams to Reality your home build companion course, which is curated to help you navigate your journey from start to finish.

Good luck on your journey. Feel free to drop us a line at Dddreamhouse or join our Facebook group and hit us up with any questions and see if we can help you navigate your home build journey.

Home warranty insurance