Building Insurance for Home Loans — What Lenders Require (Australia 2026)
Building insurance is a mandatory condition of almost every home loan in Australia. If your property is damaged or destroyed, the lender needs to know the security for their loan is protected. Here is what lenders require, what building insurance covers, and how to make sure you have the right amount.
Why Lenders Require Building Insurance
Your home is the security for your mortgage. If the building is destroyed — by fire, storm, or other event — and you have no insurance, the lender’s security disappears. For this reason, all major Australian lenders require proof of building insurance as a condition of loan settlement.
You must have building insurance in place:
- At or before settlement
- Throughout the life of the loan
- For the full replacement/rebuild value of the property
If your building insurance lapses, you are in breach of your loan conditions.
What Building Insurance Covers
Standard building insurance (also called home insurance) covers the structure of your property — not your possessions.
Typically included:
- Fire and smoke damage
- Storm, wind, hail and lightning
- Flooding (check policy — varies by insurer and flood history)
- Burst pipes and water damage
- Malicious damage and vandalism
- Impact damage (vehicle hitting property, falling trees)
- Earthquake damage
- Theft (structural damage caused by break-in)
Not included in building insurance:
- Your personal possessions (furniture, clothing, electronics) — this requires contents insurance
- Flood damage in some policies (especially in high-risk flood zones)
- Gradual deterioration or wear and tear
- Damage caused by pest infestation (termites, etc.)
- Some natural events (check exclusions carefully)
Building Insurance vs Contents Insurance vs Combined
| Policy type | Covers | Notes |
|---|---|---|
| Building insurance | Property structure, fixed inclusions | Required by mortgage lender |
| Contents insurance | Personal possessions | Not required by lender |
| Combined home & contents | Both | Most common for owner-occupiers |
Lenders require building cover — they don’t require contents cover (your possessions are not their security). However, contents insurance is strongly advisable separately.
How Much Building Insurance Do I Need?
Insure for the rebuild cost, not the market value.
Your property’s market value includes the land — which cannot be destroyed. Building insurance should cover what it would cost to demolish and rebuild the structure, including:
- Construction costs per square metre (varies by state, material, size)
- Architect/engineer/design fees
- Demolition costs
- Council fees and building permits
- Temporary accommodation during rebuild (if included in policy)
Underinsurance is common in Australia. After major natural disasters (bushfires, cyclones), many properties were found to be underinsured by 20–40%. If you are underinsured, the insurer may only pay a proportion of your claim.
Tools to estimate rebuild cost:
- Your insurer may have an online building cost calculator
- The Sum Insured Calculator at underinsurance.com.au (Insurance Council of Australia resource)
- A licensed valuer or quantity surveyor can provide a formal assessment
→ Full guide: How Much Building Insurance Do I Need?
What Lenders Check
When you provide your insurance certificate at settlement, lenders typically verify:
- The insured property address matches the loan security property
- The policy is current and covers the settlement date
- The sum insured is sufficient (some lenders cross-check against their own valuation)
- The policy is from a licenced insurer in Australia
- The lender is noted as an interested party on the policy (required by most lenders)
Noting the lender’s interest: This means your insurer will notify the lender if the policy lapses or is cancelled. It does not give the lender any ownership of your policy — it just ensures they are informed.
Strata Properties — Different Rules Apply
If you purchase an apartment, unit, or townhouse in a strata scheme, building insurance is typically arranged by the owners corporation (body corporate) — not by individual owners.
Your strata fees include a contribution to the building insurance premium. You do not normally need to arrange your own building insurance for strata properties (but you do need contents insurance for your own possessions).
Confirm with your conveyancer/solicitor at settlement that the strata building policy is in place and satisfies your lender’s requirements.
Choosing a Policy
When comparing building insurance:
- Compare sum insured vs premium — don’t just choose the cheapest
- Check flood cover — especially in flood-prone areas (check your property’s flood risk at your local council)
- Check total replacement cost policies vs agreed value policies — total replacement cost means the insurer pays whatever it costs to rebuild (preferred)
- Check exclusions carefully — storm, flood, and impact exclusions vary
- Check the excesses — lower premiums often come with higher excesses
- Insurer rating — check APRA-regulated Australian insurers via the Moneysmart insurer list
Frequently Asked Questions
When do I need building insurance — at exchange or settlement?
Most lenders require insurance in place at settlement. However, insurance risk typically transfers to the buyer at exchange (when contracts are signed) in most Australian states — meaning you may bear the risk from exchange onwards. It is prudent to arrange insurance at or immediately after exchange.
Can I use my existing building insurance from my current property?
No — building insurance is property-specific. You need a new policy for the new property.
What if I can’t get building insurance (e.g., high bushfire/flood risk)?
Some properties in high-risk areas are difficult to insure or have very high premiums. This can affect your ability to settle the loan. The insurer of last resort in Australia is the relevant state-based emergency management body — speak with an insurance broker if you cannot find cover.
Related Guides
- How Much Building Insurance Do I Need?
- LMI Explained — Lenders Mortgage Insurance
- Mortgage Insurance Hub
- All Costs When Buying a Home
This article provides general information about building insurance requirements for Australian home loans. Insurance products and lender requirements vary — read your Product Disclosure Statement (PDS) and confirm requirements with your lender or broker before settlement. For advice tailored to your situation, speak with a licensed financial adviser or insurance broker. Find advisers through MoneySmart.