Is domestic building insurance enough to protect your deposit?
Domestic building insurance helps, but it is last-resort cover with narrow triggers and a cap, and it only works if the policy was actually taken out. Here is where it stops and what fills the gap.
Domestic building insurance is worth having, but it is not enough on its own to protect your deposit. It is last-resort cover with narrow triggers and a payout cap, it can take months to pay, and it only helps if the policy was actually taken out for your job. Many owners have learned the hard way that none of those conditions are guaranteed.
If you are about to pay a deposit on a new home, it is worth understanding exactly what this insurance does, where it stops, and why a deposit can still be lost even when everyone followed the rules.
What domestic building insurance is for
Building insurance schemes exist in most states under different names. Victoria has Domestic Building Insurance, New South Wales has the Home Building Compensation scheme, and other states run their own versions. They are designed to give homeowners some protection if a builder cannot finish the work or fix defects because the builder has died, disappeared or become insolvent.
That is a genuine protection and it matters. The problem is the gap between what owners assume it does and what it actually does.
Where it stops
Three limits matter most for your deposit.
It is insurance of last resort
It is built to respond only after other options are exhausted, and only for the defined trigger events. A stalled job, a dispute, or a builder who is simply slow and difficult will usually not qualify. It is not a general money-back guarantee.
It is capped
Each scheme has a maximum it will pay, and on a larger build that cap can sit well below what you have already handed over. Check the current cap for your state before you assume your full deposit is covered, because these figures are set by each scheme and change over time.
It takes time
Even when a claim is valid, it can take months to assess and pay while your build sits unfinished and your loan keeps charging interest. The cover may eventually reduce your loss, but it does not give you your money back when you need it.
The gap that caught Porter Davis customers
The hardest limit is the one most owners never think to check: the policy has to actually exist.
When Porter Davis collapsed in 2023, a number of customers found that the builder had taken their deposit but had never put the required insurance policy in place for their build. There was simply nothing to claim against. These were people who had done everything a buyer is told to do, and they were still exposed, because the protection they were counting on had never been arranged.
The Victorian Government later created a scheme to reimburse those unprotected deposits, but that was an emergency response to a crisis, not a standing protection owners could have relied on in advance. The lesson stuck: a deposit sitting in a builder's account is only as safe as that builder's solvency and paperwork, and you often cannot verify either until it is too late.
What actually protects a deposit
The reliable way to protect a deposit is not to recover it after a loss, but to stop it being exposed in the first place. That means not letting the builder hold the money until the work it is meant to pay for has been done.
When your funds sit in a separate regulated custodial account and are released only as each stage is verified, a builder's collapse does not sweep up the money you have not yet spent the way prepaid funds in the builder's account would. It was never in the builder's account, so it sits with the custodian rather than mixed into the funds a liquidator takes control of. The aim is to keep the money that is ever exposed to the work actually in progress.
This is how BuildFair works. Owner funds are held in regulated custody with Kobble, operated by Yondr Money Pty Ltd under AFSL 545391, and BuildFair never holds your funds. Money is released against verified progress, so your deposit and your future stage payments are not sitting in a builder's account waiting on the business staying afloat.
To be clear, this does not replace building insurance. Insurance still has a role for defects and non-completion after the fact. Custody simply means there is far less of your money exposed for insurance to ever have to recover. Used together, far less of your money is exposed in the first place. The full picture is in protecting your money when you build a home in Australia.
This is general information, not insurance or legal advice. Cover, caps, and conditions vary by state and change over time, and insolvency outcomes depend on your circumstances, so check your state scheme and speak to a construction lawyer for your situation.
FAQ
Frequently asked questions
Does domestic building insurance cover my deposit?
Sometimes, and only in defined circumstances. It is last-resort cover, capped, slow to pay, and it only helps if the policy was actually taken out for your job. It is not a guaranteed refund of your deposit.
What if my builder never took out the policy?
Then there is usually nothing to claim against, which is what happened to a number of Porter Davis customers. This is why keeping unspent funds out of the builder's account is a stronger protection than relying on cover that may not exist.
Is custody a replacement for insurance?
No. They do different jobs. Insurance responds after a loss, mainly for defects and non-completion. Custody prevents the loss of unspent funds in the first place. They work best together.