Protecting Homeowners: Domestic Building Insurance
Purpose of the scheme
Domestic building insurance (DBI) protects homeowners when a builder or practitioner becomes insolvent, dies, or disappears before or during construction, or during the warranty period after completion for specified defects. In Victoria, DBI is required for domestic building work over a threshold value (currently $16,000 including labour and materials, with limited exemptions). Candidates should know the policy is taken out by the builder before work starts, that the homeowner receives a certificate of insurance, and that the cover is limited to the building work and to the statutory warranty periods.
Concepts to understand
Know that DBI is separate from the certificate of compliance and from professional indemnity insurance. Understand the statutory warranties under the Domestic Building Contracts Act 1995, including the warranty periods for structural defects and for other defects, and that DBI responds when the builder cannot. Know that the Victorian Managed Insurance Authority (VMIA) administers the scheme, and that disputes about DBI may be referred to the relevant dispute resolution body.
Traps
Questions often test whether DBI is required for a particular job value, whether the plumber or the builder must arrange it, and whether it covers defective workmanship where the builder is still solvent (it does not; the builder's warranty obligation applies first). Another trap is confusing DBI with home warranty insurance in other states.
Worked example
A homeowner engages a builder for a $45,000 renovation including plumbing. The builder must obtain DBI before commencing and give the homeowner the certificate. If the builder becomes insolvent mid-project, the homeowner may claim on the policy for incomplete or defective work within the policy terms.
Rule of thumb
If domestic building work exceeds the threshold and no exemption applies, DBI must be in place before work starts, and the homeowner must hold the certificate.