Building insurance: Legal requirement or wise precaution for property owners?
4 May 2025
5
Minutes
Katrin Straub
CEO at nextsure
Are you planning to buy a property or do you already own a home? Many people wonder: Is building insurance necessary? This article explains when it becomes essential and how you can optimally protect your most valuable asset.
The topic in brief and concise terms
There is no legal obligation for building insurance in Germany, but it is often required by banks when financing real estate.
The buildings insurance typically covers damage caused by fire, water from pipes, storm, and hail; elemental damage usually requires an additional module. [1,2]
The costs vary greatly but are low compared to potential damages; comparing and reviewing clauses, such as the waiver of gross negligence, are essential.
Building Insurance: Not a General Requirement, But Often Essential
The question of whether one must have building insurance can be answered clearly: There is no general legal obligation for all property owners in Germany. Until the year 1994, there was a requirement for fire insurance, but this was abolished. Nevertheless, there are situations where taking out residential building insurance becomes practically unavoidable. Especially in the case of property financing, banks almost always require proof of such a policy. [4,1] This serves the lending institution as security because the property itself acts as collateral for the loan and its value must be maintained. Without this protection, property financing would be hardly feasible for most buyers, as the bank would not bear the risk of a total loss of their security. Thus, an indirect obligation arises for many homeowners. For landlords, the residential building insurance is also essential to protect the property and not have to bear the costs in the event of damage. [4] The necessity of insurance is therefore high, even without a direct legal requirement.
Assessing financial risks realistically without property insurance
The costs for damage to the house can quickly reach astronomical heights. A fire, for example, may require a complete rebuild, the costs of which can easily amount to several hundred thousand euros. [2] Similarly, water damage from a burst pipe can lead to renovation costs exceeding ten thousand euros. Storm damage that removes roofs or damages facades also imposes significant financial burdens. Without buildings insurance, owners bear these costs entirely themselves. This can mean financial ruin in the worst-case scenario, especially if a mortgage is still being paid off. It is important to distinguish this from home contents insurance: buildings insurance covers damage to the structure and permanent fixtures, not the contents. The average cost for basic buildings insurance starts at around one hundred euros annually but can vary depending on the risk profile and range of coverage. [1,2] This investment is small compared to the potential damage sums.
Scope of building insurance: What is typically covered?
A connected residential building insurance policy typically covers damage caused by three main hazards. These include:
Fire: Fire, lightning, explosion, and implosion. [1]
Water damage: Damage caused by unintended escape of water, such as from burst pipes or faulty washing machine connections. [2]
Storm and hail: Damage from storms (usually from wind force eight) and hail. [1-]
The insurance covers the building itself, as well as permanently attached parts such as heating systems, sanitary installations, windows, doors, and permanently laid floors. [4] Outbuildings like garages can often also be included. In the event of a claim, the insurance covers the cost of repairs up to full reconstruction at the new value. [2] New value replacement ensures that you can rebuild a comparable house. The exact terms and exclusions can be found in the respective contract documents, and a consultation can provide clarity. It's important to understand which insurances are mandatory and which are voluntary, but still essential.
Cost factors and saving potentials in building insurance
The premium for a building insurance policy is influenced by numerous factors. These include the location of the property (risk zones for flooding or storms), the type of construction, the age of the building, and the living area. [2] The selected excess also plays a role: a higher excess often leads to a lower premium but means a higher personal contribution in the event of a claim. A precise comparison of different providers can often save several hundred euros per year. The cost for basic coverage for a family house can start at under ten euros per month. [1] Pay attention to the exact scope of services and not just the price. A look at the details of who pays for building insurance is particularly relevant for landlords and tenants. An important aspect is also whether the insurer waives the objection of gross negligence, which can be decisive in cases of self-inflicted damage, such as a forgotten candle.
Elementary damage protection: An increasingly important addition
Standard home insurance policies often do not cover damage from natural events like flooding, backflow, earthquakes, subsidence, landslides, snow pressure or avalanches. [4,2] For this, an additional natural hazard insurance is necessary. Given the increase in extreme weather events, this additional cover is becoming increasingly important. The costs for this can raise the premium by around thirty percent or more. [4] In some high-risk flood areas, obtaining coverage can be difficult or very expensive. There are political discussions about making natural hazard insurance mandatory to ensure broader protection across the population. [6,4] Currently, it remains voluntary, although experts strongly advise considering this protection, as a single heavy downpour can already cause damage exceeding fifty thousand euros. The question of whether one should have building insurance expands here to include the necessity of natural protection.
Expert Depth: Understanding Legal Principles and Current Judgments
The legal foundations of building insurance can be found in the Insurance Contract Act (VVG) and the General Residential Building Insurance Conditions (VGB) of the respective insurer. [1] These conditions precisely define which damages are insured and what exclusions apply. Our expert tip: Pay attention to the definition of “water damage” – not every type of water damage is automatically covered. Recent court rulings often clarify the interpretation of insurance conditions. For example, in 2024, the Kassel Regional Court decided that a broken drainage pipe in the garden does not constitute water damage according to the VGB. [1+] Such rulings illustrate the importance of clear formulations in the insurance contract. For landlords, it is also relevant whether and how costs can be allocated to tenants. Additionally, the question of what happens when the policyholder is not the owner requires careful examination. In case of uncertainties or damage, expert advice is essential.
Special case glass breakage: Household contents or building insurance responsible?
A frequent point of contention is the responsibility for glass damage. Is glass insurance part of home contents or building insurance? In principle: Building glazing such as windows and doors is covered by building insurance if the damage is caused by an insured peril (fire, storm, hail, water damage). For furniture glazing (e.g., glass tables, display case panes), home contents insurance is responsible. Many insurers offer separate glass insurance as an additional component, which then provides more comprehensive coverage, often even for accidental breakage without the intervention of one of the basic perils. This additional cover can be beneficial, as it usually applies to all glass surfaces of the building and partially to the furniture as well. The costs for this are often moderate, starting at around five euros per month. Carefully review your policies to avoid double insurance or gaps in coverage in the event of a claim. Clear arrangements save a lot of hassle and financial disadvantages in an emergency.
Recommendations for optimal protection of your property
More useful links
HDI provides comprehensive information on building insurance, including bank requirements and the importance of replacement value coverage.
Verivox allows for the comparison of various building insurances and provides information on average costs and coverage extents.
CosmosDirekt explains coverage for water damage and natural hazard damage as well as the factors that influence building insurance premiums.
HUK-Coburg provides information on their building insurance services, particularly regarding storm and hail damage.
AXA describes which parts of a building and fixed installations are covered by building insurance.
Focus reports on the current political discussions and arguments regarding a potential requirement for natural hazard insurance in Germany.
Bundestag provides information in a press release about the debate and positions on introducing compulsory insurance for natural hazards.
Wikipedia offers a detailed overview of the Insurance Contract Act (VVG), which forms the legal basis for building insurance.
Hirt + Teufel analyses a recent ruling by the Kassel Regional Court that clarifies the definition of water damage in the context of building insurance.
FAQ
Do I need to take out building insurance as a tenant?
No, as a tenant, you do not need to take out building insurance. This is the responsibility of the owner or landlord of the property. However, the landlord can proportionately pass the costs on to the tenants via the utility bill, if this is agreed in the rental contract.
What happens to the building insurance when selling a house?
When selling a house, the existing building insurance is automatically transferred to the new owner. However, the buyer has a special right of termination, allowing them to cancel or adjust the contract within one month of being registered in the land register. [1]
Is a fire shell insurance the same as building insurance?
No, the fire shell insurance covers the house under construction against fire damage and is often a free component of a subsequent building insurance policy. The full building insurance then comes into effect after completion and covers additional risks.
Can I deduct the premiums for building insurance from my taxes?
If you live in the property yourself, you generally cannot deduct the building insurance contributions for tax purposes. Landlords, however, can claim the costs as advertising expenses. If you use part of the house for work purposes (e.g., a study), a proportional deduction is possible. [5]
What does 'Unterversicherungsverzicht' mean in building insurance?
An underinsurance waiver means that the insurer will fully cover the costs up to the agreed insurance sum in the event of damage, even if the actual value of the building is higher than the insurance sum. The prerequisite is usually the correct specification of the living area or the value as of 1914.
How quickly must I report a building insurance claim?
You should report any damage to your building insurance without delay, as quickly as possible. The exact deadlines are specified in the insurance terms, but prompt reporting is important to ensure your claim is not jeopardised.
