Building insurance is a type of home insurance that covers the building itself, along with the fixtures.

The specifics of what is recovered under a building insurance policy will differ between insurers. However, typically, the following are covered:

• Fire
• Theft
• Storm Damage
• Earthquake
• Explosion
• Impact damage (such as from a car or a falling tree
• Escape of water (such as from a burst pipe)
• Vandalism and Riot

If you have other elements to your property, such as an in-ground pool, tennis court, boat jetty or sheds, you’ll also need to include their replacement value.

Building Insurance will normally be based on either the sum-insured cover, which is calculated on an estimate of the cost of rebuilding or total replacement cover, which insures you for the total cost of repairing or rebuilding your home to the same standard.

If your property is under a strata title (such as an apartment building), home insurance is generally recovered as a part of your Strata Levies that are paid each quarter. It’s important to clarify who and what you are expected to pay prior to purchase, and this is normally laid out clearly in a Strata Report.

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Why is Building Insurance Required?

Apart from giving you, as the owner, peace of mind and protection, having adequate building insurance in place might be one of the lender’s conditions of approval.

From the lender’s perspective, they are at risk should your property be damaged or destroyed, and the building itself often has a significant value in smaller, newer dwellings.

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The difference between building and replacement insurance

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One key point to understand when it comes to insurance, is the difference between building and replacement insurance.

Generally, building insurance is not always the same as the building costs. That’s because replacing a building also involves the costs that come with clearing land and getting approvals to build etc.

Normally the replacement cost is a lot more than the value of building construction.

Similarly, the cost of building increases over time, due to inflation, meaning a policy taken out today needs to take the cost in tomorrow's dollars into account, which will also be undoubtedly higher.