Building insurance: a legal requirement or sensible precaution for property owners?
04.05.25
3
Minutes
Katrin Straub
Managing Director at nextsure
Are you about to buy a property, or do you already own a home? Many people ask themselves: Do you need buildings insurance? 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 requirement for buildings insurance in Germany, but it is often required by banks when financing property.
Building insurance typically covers damage caused by fire, escape of water, storms and hail; damage caused by natural hazards usually requires an additional cover option. [1,2]
The costs vary widely, but are low compared with potential damage; a comparison and checking clauses such as waiver of gross negligence are essential.
Buildings insurance: No general obligation, but often essential
The question of whether you need building insurance can be answered clearly: there is no general legal requirement for all property owners in Germany. Until 1994, fire insurance was compulsory, but this was then abolished. Nevertheless, there are situations in which taking out buildings insurance effectively becomes unavoidable. Especially when financing a property, banks almost always require proof of such a policy. [4,1] This serves as security for the lending institution, as the property itself acts as collateral for the loan and its value must be preserved. Without this protection, a property purchase loan would be hardly feasible for most buyers, as the bank would not be willing to bear the risk of a total loss of its security. This creates an indirect obligation for many homeowners. For landlords, buildings insurance is also essential to protect the property and avoid having to cover the costs themselves in the event of damage. [4] The need for cover is therefore high, even without a direct legal requirement.
Assess financial risks realistically without buildings insurance
The costs of damage to a house can quickly reach astronomical levels. A fire, for example, can make a complete rebuild necessary, the cost of which can easily amount to several hundred thousand euros. [2] Damage caused by burst pipes, for example, can also result in remediation costs of over ten thousand euros. Storm damage that tears off roofs or damages façades also causes significant financial burdens. Without buildings insurance, owners bear these costs in full themselves. In the worst case, this can mean financial ruin, especially if a mortgage is still being repaid. It is important to distinguish this from contents insurance: buildings insurance covers damage to the structure and permanently attached parts, not the contents. The average cost of basic buildings insurance starts at around one hundred euros per year, but can vary depending on the risk profile and level of cover. [1,2] This investment is small compared with the potential sums involved.
Scope of cover for buildings insurance: What is typically covered?
A combined residential building insurance policy usually covers damage caused by three main perils. These include:
Fire: fire, lightning strike, explosion and implosion. [1]
Water leakage: damage caused by water escaping unintentionally, for example from burst pipes or faulty washing machine connections. [2]
Storm and hail: damage caused by 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 flooring. [4] Ancillary buildings such as garages can often also be included in the cover. In the event of a claim, the insurer covers the cost of repairs up to complete rebuilding at new-for-old value. [2] New-for-old compensation ensures that you can rebuild an equivalent house. The exact terms and exclusions can be found in the relevant contractual documents, and a consultation can help clarify this. It is important to understand which compulsory insurances there are and which are voluntary, but nevertheless essential.
Cost factors and savings potential in building insurance
The premium for buildings insurance is influenced by numerous factors. These include the property's location (risk zones for flooding or storms), the construction class, the age of the building and the living space. [2] The chosen excess also plays a role: a higher excess usually leads to a lower premium, but means a greater contribution from you in the event of a claim. A precise comparison of different providers can often save several hundred euros a year. The cost of basic cover for a detached house can start at under ten euros per month. [1] Pay attention to the exact scope of cover, not just the price. A look at the details of who pays for buildings insurance is particularly relevant for landlords and tenants. Another important aspect is whether the insurer waives the defence of gross negligence, which can be crucial in the case of self-inflicted damage, such as a forgotten candle.
Natural hazard cover: An increasingly important addition
Standard buildings insurance policies often do not cover damage caused by natural events such as flooding, backflow, earthquakes, subsidence, landslips, snow pressure or avalanches. [4,2] For this, additional natural hazards insurance is required. In view of the increase in extreme weather events, this additional cover is becoming ever more important. The cost of this can increase the premium by around thirty per cent or more. [4] In some flood-prone areas, obtaining cover can be difficult or very expensive. There are political discussions about making natural hazards insurance compulsory in order to achieve broader protection across the population. [6,4] At present, however, it is voluntary, although experts urgently advise considering this cover, as a single heavy downpour can already cause damage of over fifty thousand euros. The question of whether you need buildings insurance here is expanded by the need for natural hazards cover.
Expert depth: Understanding legal fundamentals and current rulings
The legal basis for 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 define precisely which damages are insured and which exclusions apply. Our expert tip: pay attention to the definition of “escape of water damage” – not every water damage is automatically covered. Recent court rulings often clarify the interpretation of the insurance conditions. For example, in 2024 the Kassel Regional Court ruled that the rupture of a drainage pipe in the garden does not constitute escape of water damage within the meaning of the VGB. [1+] Such rulings highlight how important clear wording is in the insurance contract. For landlords, it is also relevant whether and how the costs can be passed on to tenants. The question of what happens when the policyholder is not the owner also requires careful examination. In the event of any uncertainty or a claim, expert advice is essential.
A common point of contention is which policy is responsible for glass damage. Is glass insurance part of contents or buildings insurance? As a general rule: building glazing such as windows and doors is covered by buildings insurance if the damage is caused by an insured peril (fire, storm, hail, escape of water). For glass in furniture or contents (e.g. glass tables, display cabinet panes), contents insurance is responsible. Many insurers offer a separate glass insurance add-on, which then provides more comprehensive cover, often also for accidental breakage without any of the basic perils being involved. This additional cover can be worthwhile, as it usually applies to all glass surfaces of the building and in some cases also to contents. The cost is often moderate, for example from five euros per month. Check your policies carefully to avoid double insurance or gaps in cover in the event of a claim. A clear arrangement saves a lot of hassle and financial disadvantages in an emergency.
Recommendations for optimal protection of your property
In summary: although the question “Do you need buildings insurance?” cannot be answered with a general yes, it is indispensable for most property owners. Here are specific recommendations for action:
Check your bank’s requirements when arranging finance – in most cases, buildings insurance is mandatory.
Take out at least a basic buildings insurance policy that covers fire, water damage from burst pipes, storm and hail.
Strongly consider including natural hazard insurance, especially in high-risk regions.
Compare offers regularly – premiums and benefits can vary significantly, and savings of over twenty per cent are often possible.
Pay attention to important clauses such as a waiver of the defence of gross negligence.
Document the condition of your property and keep all relevant documents carefully stored.
Adjust your insurance cover when making structural changes or if the value increases.
Regular review, at least every three to five years, ensures you have optimal protection. Our mission at nextsure is to offer you tailored and easy-to-understand insurance solutions. We are happy to support you in analysing your individual risk situation. The next step is an individual risk analysis.
More useful links
HDI offers comprehensive information on buildings insurance, including banks' requirements and the importance of new-for-old replacement.
Verivox enables comparison of various buildings insurance policies and provides information on average costs and levels of cover.
CosmosDirekt explains cover for escape of water damage and natural hazard damage, as well as the factors that influence buildings insurance premiums.
HUK-Coburg provides information on the benefits of its buildings insurance, particularly with regard to storm and hail damage.
AXA describes which parts of the building and permanently connected installations are covered by buildings insurance.
Focus reports on the current political debate and arguments regarding a possible requirement for natural hazard insurance in Germany.
Bundestag reports in a press release on the debate and the positions on introducing compulsory insurance for natural hazard damage.
Wikipedia offers a detailed overview of the Insurance Contract Act (VVG), which forms the legal basis of buildings insurance.
Hirt + Teufel analyses a current ruling of the Kassel Regional Court that clarifies the definition of escape of water damage in the context of buildings insurance.
FAQ
As a tenant, do I need to take out buildings insurance?
No, as a tenant you do not need to take out building insurance. This is the responsibility of the property owner or landlord. However, the landlord may pass on a proportionate share of the costs to the tenants via the service charge statement if this is agreed in the tenancy agreement.
What happens to the buildings insurance when selling a house?
When a house is sold, the existing buildings insurance automatically transfers to the new owner. However, the buyer has a special right of cancellation of one month after entry in the land register, in order to terminate or amend the contract. [1]
Is fire shell construction insurance the same as buildings insurance?
No, fire shell insurance covers the house under construction against fire damage and is often included free of charge as part of a later buildings insurance policy. Full buildings insurance then takes effect upon completion and covers additional risks.
Can I deduct building insurance premiums from my taxes?
If you live in the property yourself, you generally cannot deduct the building insurance contributions for tax purposes. Landlords, on the other hand, can claim the costs as business expenses. If you use part of the house for work purposes (e.g. a study), a proportional deduction is possible. [5]
What does 'waiver of underinsurance' mean in buildings insurance?
A waiver of underinsurance means that, in the event of a claim, the insurer fully covers the costs up to the agreed sum insured, even if the actual value of the building is higher than the sum insured. The prerequisite is usually the correct declaration of the living area or the 1914 value.
How quickly do I need to report damage to my buildings insurance?
You should report any damage to your buildings insurance immediately, i.e. as quickly as possible. The exact deadlines are set out in the insurance terms and conditions, but prompt notification is important so as not to jeopardise your entitlement to claim.
