The Ultimate Guide to Home Owners Warranty Insurance: Everything You Need to Know

What is Home Owners Warranty Insurance?

Home Owners Warranty Insurance, now known as the Home Building Compensation Fund (HBCF) cover, is a type of insurance designed to protect homeowners against financial loss due to defective or incomplete building work. It provides coverage for both structural and non-structural defects that may arise during the construction process or within a specified period after completion. This comprehensive guide will take you through the ins and outs of HBCF, its coverage, eligibility criteria, obtaining the insurance, and the advantages it offers.

How HBCF Differs from Other Types of Insurance

Unlike traditional home insurance, which primarily covers events like fire, theft, or natural disasters, Home Owners Warranty Insurance specifically focuses on defects in building work and materials. It is a specialised insurance product tailored to address the unique risks associated with construction, and provides homeowners with additional protection beyond the scope of standard policies.

Taken out by the builder prior to works being commenced, the costs and coverage of Home Owners Warranty Insurance are passed on by the builder to the owner, protecting them (and subsequent owners) in the events that the builder: 

  • dies
  • disappears
  • becomes insolvent
  • has had their licence suspended due to non-compliance with an order by the NSW Civil and Administrative Tribunal or court to pay the homeowner money

SOURCE: https://www.hiainsurance.com.au/products/home-warranty-insurance/home-warranty-insurance-nsw

The cost of HBCF varies depending on several factors, including the property type, construction value, and location. While the premium adds to the overall cost of the project, it provides invaluable protection and peace of mind.

What Does The Home Building Compensation Fund Cover?

Structural Defects

HBCF covers structural defects that affect the stability, safety and integrity of the property. This includes issues like foundation problems, structural movement, and significant faults in load-bearing elements, up to the value of $340,000 for 6 years following the completion of the project.

Non-Structural Defects

Non-structural defects covered by the HBCF refers to issues that impact the functionality and livability of the home. Examples include faulty plumbing, electrical problems, inadequate waterproofing, and problems with windows and doors, up to the value of $340,000 for 2 years following the completion of the project.

Building Work and Materials

HBCF also provides coverage for defects arising from faulty building work or materials used in the construction process. This ensures that homeowners are protected if the workmanship or materials fall short of the required standards.

Failure to Commence or Complete

If a project fails to commence, or is not completed in line with the contract, a client has 12 months to reclaim their deposit or a 20% refund of the contracted amount. 

Exclusions and Limitations

It’s important to note that HBCF may have exclusions and limitations, such as defects resulting from normal wear and tear, acts of nature, or homeowner negligence. Understanding the specific terms and conditions of the policy is crucial to understanding the extent of the coverage provided. Whether you are a builder or a homeowner, the Building and Construction Law team at Maguire and McInerney are experienced across the industry and can provide advice and clear explanations.

Who is Eligible for Home Owners Warranty Insurance?

Eligible Properties

Generally, HBCF is required for projects over $20,000, which includes newly constructed residential properties as well as those undergoing substantial renovation or alteration. It typically covers houses, townhouses, apartments, and units, but the eligibility criteria may vary depending on the state or territory in Australia. 

Eligible Builders and Contractors

Builders and contractors undertaking residential construction or renovation work must be licensed and registered with the relevant authority to be eligible for HBCF coverage. Compliance with regulatory requirements is essential to ensure that homeowners are protected by the insurance. 

Eligible Buyers and Owners

Homeowners purchasing a property directly from a developer or contractor, or those who engage a builder to undertake construction or renovation work, are eligible for HBCF coverage. It is essential to confirm the eligibility of both the property and the builder/contractor before proceeding with the insurance.

If you are unsure if your home qualifies, or have concerns about the Home Owners Warranty Insurance provided to you, reach out to us at Maguire & McInerney.

Cost of HBCF

The cost of HBCF varies depending on several factors, including the property type, construction value, and location. It is advisable to obtain quotes from different insurers to ensure you receive the best coverage at a competitive price. While the premium adds to the overall cost of the project, it provides invaluable protection and peace of mind.

How to Make a Claim

In the event of a defect covered by the HBCF, homeowners should promptly notify their insurer and follow the designated claims process outlined in their policy. This typically involves providing evidence of the defect, cooperating with any investigations, and allowing access to the property for inspections or repairs. It is essential to get legal advice, review your policy thoroughly and follow the specific instructions provided by your insurer and solicitor.

Advantages of Home Owners Warranty Insurance

Protection for Homeowners

HBCF offers homeowners protection against the financial burden of rectifying defects in their property. It provides a safety net in case issues arise during or after the construction process, allowing homeowners to seek compensation for necessary repairs or corrections.

Protection for Builders and Contractors

By requiring builders and contractors to obtain the HBCF, an additional layer of accountability is provided. It encourages quality workmanship and incentivises contractors to rectify any defects promptly to avoid potential claims.However, it also provides protection to those in the construction industry, by helping to avoid or mitigate potential legal action taken against them, or financial loss as a result of defects.

Financial Security

With HBCF in place, homeowners can have peace of mind knowing that they are financially protected in case of unforeseen defects or issues. It mitigates the risk of substantial financial losses and ensures that the necessary repairs or rectifications are carried out without causing significant financial strain.

Conclusion

Home Building Compensation Fund, or Home Owners Warranty Insurance, is a crucial component of protecting your home and investment. It offers coverage for structural and non-structural defects, as well as faulty building work and materials. By understanding the eligibility criteria, following the steps to obtain the insurance, and familiarising yourself with the claims process, you can ensure you have the necessary protection in place. Don’t overlook the importance of insurance — obtaining it provides homeowners with peace of mind and safeguards their most significant asset, their home.

If you have a claim or a query regarding construction problems or your Home Warranty Insurance, reach out to the Maguire & McInerney team today.

Important Disclaimer: The material contained in this publication is of general nature only and is based on the law as of the date of publication. It is not, nor is intended to be legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.