Contract works insurance and builder's warranty insurance are two completely different products that cover different risks at different stages of a building project. Despite this, they are frequently confused — even by experienced builders. Understanding the distinction is critical for both builders and homeowners to ensure adequate protection.
In short: contract works insurance covers physical damage during construction. Builder's warranty insurance protects the homeowner after completion if the builder cannot finish or fix defects. Most residential builders need both.
| Feature | Contract Works Insurance | Builder's Warranty Insurance |
|---|---|---|
| What it covers | Physical damage to the works during construction (fire, storm, theft, vandalism, water damage) | Homeowner protection if the builder cannot complete or rectify defects due to insolvency, death or disappearance |
| When it applies | During the construction period | After construction is completed (or if the builder abandons the project) |
| Who it protects | Builder, principal, subcontractors (all parties involved in the project) | The homeowner only |
| Who arranges it | Usually the builder (or principal on larger projects) | The builder (it is a condition of their licence for residential work) |
| Who pays the premium | The builder (often passed through to the homeowner as part of the contract price) | The homeowner (collected by the builder as part of the contract) |
| Is it mandatory? | Not by law, but required by building contracts and lenders | Yes, by state legislation for residential work above threshold amounts |
| Cover period | Duration of construction (plus defects liability period if extended) | 6 years for structural defects, 2 years for non-structural (varies by state) |
| Also known as | Construction all risks (CAR), construction works insurance | Home warranty, domestic building insurance, building indemnity insurance, home building compensation |
| Applies to commercial work? | Yes — commercial projects are covered | No — only residential building work |
Contract works insurance is an "all risks" construction policy that protects against accidental physical loss or damage to the building works during the construction period. It covers:
It is available as a single-project policy or an annual turnover policy. The premium is based on the contract value or annual turnover. For a full breakdown of coverage and exclusions, see our comprehensive guide to contract works insurance.
Builder's warranty insurance is a consumer protection product that exists to protect homeowners when things go wrong after the build is finished. It operates as a last-resort safety net in specific circumstances:
Common misconception: Builder's warranty insurance does not cover poor workmanship while the builder is still trading. If your builder does a poor job but is still in business, your remedy is through the builder directly (and ultimately through the courts or state tribunal if they refuse to rectify). Builder's warranty only kicks in when the builder is unable to meet their obligations.
Builder's warranty insurance is mandatory for residential work but goes by different names and has different thresholds in each state:
| State | Name | Threshold | Administered By |
|---|---|---|---|
| NSW | Home Building Compensation | Over $20,000 | icare (NSW Government) |
| Victoria | Domestic Building Insurance | Over $16,000 | VMIA |
| Queensland | Home Warranty Insurance | Over $3,300 | QBCC |
| South Australia | Building Indemnity Insurance | Over $12,000 | Consumer and Business Services |
| Western Australia | Home Indemnity Insurance | Over $20,000 | DMIRS |
| Tasmania | Home Warranty Insurance | Over $20,000 | Consumer Affairs and Fair Trading |
| ACT | Building Warranty Insurance | Over $12,000 | Access Canberra |
| NT | Home Warranty Insurance | Over $12,000 | NT Consumer Affairs |
If you are a residential builder in Australia, you almost certainly need both:
These products complement each other. Contract works insurance covers the construction phase; builder's warranty covers the post-completion phase. There is no overlap — they address completely different risks.
Consider a builder constructing a $750,000 home in Brisbane:
Two completely different scenarios, two completely different insurance products.
Contract works covers physical damage during construction (fire, storm, theft). Builder's warranty protects the homeowner after completion if the builder cannot complete or fix defects due to insolvency, death or disappearance. They cover completely different risks at different stages.
Yes, for residential work. Contract works protects the project during construction. Builder's warranty is a mandatory consumer protection for residential building work. They are complementary products — neither substitutes for the other.
Yes, for residential building work above state-specific thresholds. In NSW it is required for work over $20,000, in Victoria over $16,000, and in Queensland over $3,300. It is a condition of the builder's licence and must be in place before construction commences.
Only if the builder is unable to rectify the defects because they are insolvent, deceased or have disappeared. If the builder is still operating, the homeowner's remedy is through the builder directly. Builder's warranty is a last-resort safety net, not a quality assurance guarantee.
In most states, owner-builders cannot obtain builder's warranty insurance — it is only available to licensed builders. However, if an owner-builder sells the property within a specified period (typically 6 years), the subcontractors who performed the work may need to have provided their own warranty cover for their portion of the work.