Domestic Building Insurance

Introduction
Domestic Building Insurance (‘DBI’) is often referred to as ‘insurance of last resort’. It is not a general insurance policy and it does not respond to every problem that might arise during or after a build.

A domestic building insurance policy is taken out by the builder, not the homeowner, although it exists for the homeowner’s benefit. The policy is only triggered if the builder dies, disappears, or becomes insolvent. Until one of those events occurs, the insurance does not respond, even if there are defects or incomplete works. In that case, you need to reach out to the builder or make a claim at VCAT.

This is significant because many homeowners assume that DBI will automatically cover defective or poor-quality work. That is not how the policy operates. Defects and incomplete work are only covered if the policy has first been triggered by one of the defined events. Without that trigger, DBI does not apply.

Where the policy is triggered, it can cover both defective work and incomplete work, but the coverage is capped. The total maximum payout under a domestic building insurance policy is $300,000. Within that total cap, incomplete works are limited to 20 per cent of the original contract price. For example, if the contract price was $500,000, the maximum amount available for incomplete works would be $100,000, and that amount forms part of the overall $300,000 limit.

Victorian law also places strict obligations on builders in relation to DBI. A builder is not permitted to demand or receive payment under a domestic building contract unless domestic building insurance has been obtained where it is required. It is an offence for a builder to take payment before the insurance is in place.

If a builder has died, disappeared, or become insolvent, it is important to notify the insurer as soon as possible. In Victoria, domestic building insurance was administered by the Victorian Managed Insurance Authority (‘VMIA’), but is now done by the Building and Plumbing Commission (‘BPC’). While there were previously private insurers offering DBI, from 1 July 2025 the BPC, operating through the relevant authority, became the sole provider of domestic building insurance.

Claims should identify all known defects and issues at the property and be submitted together. The insurer will generally not allow claims to be amended or expanded after submission, meaning additional defects discovered later may require a separate claim, and even a second claim may be limited in many circumstances.

There are also strict time limits that apply. Claims for non-structural defects must generally be made within two years, while claims for structural defects have a six-year time limit. In addition, the homeowner has 180 days to notify the insurer that the policy has been triggered. This notification does not need to include the claim, but just that the policy is triggered.