Is home warranty insurance compulsory in NSW?

When home warranty insurance is compulsory

The scheme is run by icare as the Home Building Compensation Fund (HBCF). icare explains that HBCF cover is required by law for most residential building work valued at more than $20,000 unless an exemption applies. A new custom home sits well above that threshold, so the cover will almost always apply.

The timing is strict. Under the NSW Government's rules for building contracts, a builder cannot ask for a deposit or any other payment until the cover is in place and you hold the certificate. The deposit itself is capped at 10 per cent of the contract price. Check that the Certificate of Insurance shows your name, the property address and the contract details, then keep it with your contract.

What home warranty insurance covers

HBC is last resort cover. icare sets out that it responds when your builder becomes insolvent, dies or disappears. It also responds if their licence is suspended for failing to pay money a tribunal or court has ordered them to pay you. While the builder is still trading, you raise defects and disputes with them first.

When one of those events happens, the policy can cover the cost to complete or fix the work within its limits. icare sets these cover periods:

• incomplete work, including loss of your deposit, for up to 12 months from when work stopped or failed to start
• major defects, such as serious structural problems or serious water leaks that damage the building, for up to 6 years from completion
• other defects, such as poor finishes, for up to 2 years from completion

The maximum claim for current policies is $340,000 for the property, a total that includes any claims made by earlier owners. The cover stays with the house if you sell it. It does not pay for wear and tear, maintenance, changes of mind about design or materials or costs above the limit.

Who pays for home warranty insurance?

The builder takes out and pays for the policy. icare confirms that builders pay a premium when they apply for the Certificate of Insurance for a specific project. It encourages builders to estimate the premium early so they can plan their pricing and explain the cost to the homeowner. That is why the premium normally sits within the contract price you pay.

Premiums are risk based. icare works them out from the type of project, the contract value, the location and the builder's own risk profile, which earns a loading or discount. For a new house in metropolitan NSW the base rate from 1 November 2025 is 1.158 per cent of the contract value. That figure includes GST and stamp duty but comes before the builder's loading or discount.

What HBC cover does not replace

HBC is one of several policies on a building project. Building Commission NSW's guidance on insurance for contractors says the builder should also carry contract works insurance and public liability insurance. Contract works cover protects the materials and work against loss or damage. If you are replacing a house you already own, speak to your own insurer in writing before work begins so you know where your cover stops and the builder's starts.

icare stresses that builders remain responsible for completing the work and fixing defects while they are operating. Our guide on how to choose a luxury home builder in Sydney shows how to verify a certificate and check a builder's eligibility before you sign.

How we handle home warranty insurance at SHORE

We are a licensed NSW builder (licence 311594C), so the HBC certificate for your home comes to you before any deposit, as the law requires. We offer fixed lump-sum pricing with consultant coordination included, while the contract structure itself is tailored to each project. Whichever form your contract takes, check how it treats the insurance cost, any allowances and any exclusions before you sign.

If you are comparing builders, it is also worth understanding what iCIRT is and why it matters as a separate measure of a builder's track record. To see how a new home comes together from site visit to handover, explore our custom homes in Sydney.