Insurance traps for Australian homeowners

The 8 most common insurance traps

Building and renovation projects involve significant financial risk. Understanding which insurances apply — and where the gaps are — is essential before you sign any contract.

1. What types of insurance are there?

There are several distinct types of insurance involved in residential building work: Home Owners insurance, Home Owners Warranty insurance, Builders insurance, Public Liability insurance, and Workers Compensation insurance. Each covers different risks and parties.

2. Mandatory insurances

Builders are legally required to hold certain insurances before commencing work. These vary by state but typically include Public Liability and, for projects above a threshold value, Home Owners Warranty (also called Builders Warranty or Home Warranty insurance). Confirm your builder holds current mandatory cover before work begins.

3. Home Owners insurance

Your own home and contents insurance typically does not cover damage caused by building work. Review your policy carefully and speak with your insurer before work commences to understand what is and is not covered during construction.

4. Home Owners Warranty insurance

This insurance (also called Builders Warranty) is designed to protect you if a builder dies, disappears, or becomes insolvent. It does not protect you from poor workmanship while the builder is still in business — a common misconception that leaves many homeowners exposed.

5. Builders insurance

A builder should carry their own insurance covering damage to works in progress, theft of materials, and liability for damage to third-party property. Request a current certificate of currency before work starts.

6. Public Liability insurance

Covers claims for property damage or personal injury caused by the builder or their subcontractors. Confirm coverage limits are adequate for the scale of your project.

7. Workers Compensation insurance

If a worker is injured on your property and the builder does not carry adequate Workers Compensation insurance, you may face liability. Confirm all workers — including subcontractors — are covered.

8. Gaps, traps and pitfalls

The most common trap: assuming that because a builder is licensed and insured, you are fully protected. Policy exclusions, coverage limits, and gaps between insurance types can leave significant exposure. Always read the certificates, not just the assurances.