What are the benefits of residential building insurance?

Residential building insurance – often simply referred to as buildings insurance – covers the building and objects permanently attached to the building if it is damaged by fire, a water leak, storms or hail, for example.

If damage occurs, the insurance will pay for any repairs to damaged parts of the building. Removal and disposal of damaged materials and objects is also insured. If the building has to be demolished due to damage, the insurance company will pay for the new construction, including planning costs, provided that you have replacement cost insurance with an inflation guard linked to the construction price index (gleitende Neuwertversicherung).

What exactly is insured and to what extent depends on the terms and conditions of the respective insurance policy. The benefits differ from one insurer to another. In addition, many insurance companies offer several policy tiers – from basic cover to comprehensive protection.

Residential building insurance vs. home contents insurance

Residential building insurance covers damage to the property itself. Home contents insurance, on the other hand, protects your belongings in the property – from furniture and electrical appliances to valuables. In individual cases, there may be disputes about who is responsible for what, especially if permanently installed objects are damaged. In the event of a dispute, it may be wise to seek legal advice. 

While home contents insurance is relevant for all types of residents – regardless of whether they are tenants or property owners – residential building insurance is only for owners. 

What should I consider when taking out residential building insurance?

Choose the right cover

Residential building insurance is not legally required, but it is generally a prerequisite for obtaining a property loan.

Check whether the benefits included in the contract offered suit your needs and circumstances. Is basic cover enough for you? For example, do you have a photovoltaic system (solar panels) or a heat pump that should also be covered by the insurance? Or should the insurance also cover hotel accommodation for a certain period if your home becomes uninhabitable? Insurers offer many options. 

However, bear in mind that the insurance premium for more comprehensive cover is higher than for basic cover. Compare different policy tiers and providers to find the right offer for you.

In the case of owner-occupied apartments, residential building insurance is usually handled centrally by the owners' association.

Determine the sum insured

There is usually no fixed sum insured for buildings insurance. The common model in Germany is replacement cost insurance with an inflation guard linked to the construction price index. With such policies, the sum insured and the premiums are adjusted annually in line with price trends in the construction industry to ensure that the insurance cover is always sufficient. This assumes that the sum insured was calculated correctly when the policy was taken out and that any structural alterations that increase the value of the property have been reported.

Gross negligence

When looking at the policy tiers on offer, check whether the insurer can reduce benefits in the event of gross negligence – for example, if you leave the skylight open during a storm or if an unattended candle starts a fire.

Natural disasters

Damage to buildings caused by natural disasters such as flooding, heavy rain, landslides, avalanches or earthquakes can be covered by natural disaster insurance. Natural disaster insurance is generally only available as an add-on to residential building insurance rather than as a stand-alone policy. Think about whether insurance that covers natural disasters makes sense for you and, if it does, consider supplementing your insurance coverage. Check which specific natural disasters are covered and what obligations you have as an insured person. The insurance premium is based on the level of risk in the area where you live. 

Some insurers have now started to only offer residential building insurance that includes natural disaster cover. There are also insurers that include natural disasters as standard but have an option to opt out in return for lower premiums ("opt-out models"). 

Where can I take out residential building insurance?

You can take out residential building insurance with an insurance company directly, for example in a branch or online. Alternatively, you can contact an insurance broker, insurance agent or independent insurance adviser. 

What information is the insurer required to provide?

The insurer must provide you with the following information before the contract declaration (Vertragserklärung) is accepted. 

• Insurance product information document: this contains the most important information about your policy in a compact format and includes, for example, details of your insurance protection, premiums and notice periods for termination.
• Customer information: this includes information about the insurer, the services provided, the contract and available legal protections.
• General residential building insurance terms and conditions (Allgemeine Wohngebäude-Versicherungsbedingungen – VGB)

What do I need to be aware of to ensure that the insurance will pay out if I make a claim? 

In order for the insurance to pay out if you make a claim, you must comply with the obligations specified in the insurance terms and conditions. This can include, for example, heating the building in winter to prevent pipes from bursting. 

You must also inform the insurer if a claim becomes significantly more likely. This may be the case, for example, if the building is unoccupied for a longer period of time or if the roof is temporarily exposed due to construction work. 

What should I do if I need to make a claim? 

If you need to make a claim, you must inform your insurer immediately. You must also provide your insurer with any information it requests in order to verify that an insured event has occurred or to determine the extent of its liability.

You must also do everything possible to minimise the damage when it occurs. The insurer bears the costs of measures taken to minimise or prevent damage provided that these measures do not exceed the total costs of the damage.

If you do not fulfil your obligations, the insurer may refuse to settle the claim in whole or in part. You may then have to bear the costs incurred yourself.

What happens when there is a change in ownership? 

If you purchase a property, any existing residential building insurance policy is automatically transferred to you. However, you have a special right of termination. After the transfer of ownership has been entered into the land register (Grundbuch), you can terminate the contract within one month. The insurer also has a special right of termination, which it can exercise within one month of being informed of the sale. 

A change in ownership must be reported to the insurer immediately by the purchaser or the seller. 

If the purchaser terminates the contract without notice, the insurer must refund the seller any excess amounts from premium payments that had been made prior to termination. However, if the purchaser terminates the policy at the end of the contract term, the insurer may retain the premium already paid by the seller. 

If you have inherited a house, any existing residential building insurance is automatically transferred to you. You do not have a special right of termination in this case. 

When can I terminate my residential building insurance? 

The insurance contracts usually run for one year. If neither you nor the insurer terminates before the end of the term, the contract will be extended for a further year. The notice period for termination is usually three months to the end of the contract term. Information on the notice periods for termination and the policy duration for your residential building insurance can be found in the insurance terms and conditions. 

By law, you and the insurer can initiate an extraordinary termination of the policy after a claim. 

There are also special termination rights in the event of a change of ownership – as described above in this article. 

How are residential building insurers supervised? 

BaFin supervises German insurance companies and monitors their business operations. BaFin’s responsibilities include ensuring that the legal and financial interests of all insured persons are adequately protected. In order to protect the collective interests of insured persons, BaFin accepts and processes complaints about individual insurance companies. However, BaFin cannot enforce your rights as an individual. That is the responsibility of the courts.