Building Insurance

Building Insurance - Building insurance is the general term for insurance policies that cover the building itself and its permanently attached fixtures against damage caused by fire, water damage, storms, hail, and other risks. It is one of the most important types of insurance for property owners and is generally required when financing a property through a bank.

Scope and Covered Risks

Traditional homeowners insurance covers four basic risks: fire (including fire, lightning, explosion, and implosion), water damage (burst pipes, frost damage to pipes, and accidental water leakage), storms with wind speeds of eight or higher, and hail. The policy covers the building itself, all permanently installed fixtures such as heating systems, plumbing, built-in kitchens, and flooring, as well as outbuildings, provided they are listed in the contract.

Additionally, natural disaster insurance can be purchased to cover damage caused by natural events such as flooding, backwater, earthquakes, landslides, snow load, and avalanches. This extension is becoming increasingly important in light of rising extreme weather events and is already included as standard in many new policies. Glass insurance covers damage to building glazing such as windows, door glass, and sunrooms and is often offered as a separate module or standalone policy.

Building insurance does not cover damage to movable household contents-this is the responsibility of household contents insurance-nor does it cover damage resulting from poor maintenance, wear and tear, or intentional acts. Damage caused by war, nuclear energy, and civil unrest is also generally excluded.

Obligations, Costs, and Contract Terms

When purchasing a property with bank financing, the lending institution almost without exception requires proof of residential building insurance, as the building serves as collateral for the loan. In condominium associations (WEG), building insurance is mandatory: The property manager takes out the policy for the entire building, and the costs are allocated to the individual owners via the monthly maintenance fees.

Premiums are based on the building’s replacement value (calculated using the 1914 value and the current construction price index), the building class, the location, and the agreed deductibles. A higher deductible-typically 500 to 2,500 euros per claim-significantly reduces the annual premium and prevents minor damages from burdening the claims history.

The waiver of underinsurance is particularly important: If it is agreed upon in the contract and the 1914 value is correctly determined, the insurer waives a proportional reduction in the event of a claim. Without this waiver, a significantly reduced payout is likely if the sum insured is set too low.

Sum Insured and Underinsurance

A common mistake with building insurance is underinsurance: the sum insured does not cover the actual replacement value of the building. This can happen if the sum insured is not adjusted following a major renovation or modernization (new kitchen, bathroom, attic conversion). In the event of a claim, the insurer can then reduce the benefit on a pro-rata basis-even in the case of a total loss.

To avoid this, we recommend:

• Agreeing to a sliding replacement value factor (adjustment of the sum to the construction price index) in the contract
• Having the 1914 value reviewed and adjusted as necessary after every major modernization
• Explicitly agree to a waiver of underinsurance

Photovoltaics and Heat Pumps: New Insurance Issues

The widespread adoption of photovoltaic systems and heat pumps raises new insurance questions. Many older building insurance policies do not cover these systems or only provide limited coverage. Owners should explicitly verify whether:

• Roof-mounted PV systems are covered by the building insurance or a separate PV insurance policy
• Damage caused by heat pumps (e.g., water damage from leaks in the refrigerant circuit) is covered
• Loss of income due to business interruption caused by an insured loss is also covered

Practical Tip for Nuremberg and Franconia

In the Nuremberg metropolitan region, we recommend that property owners pay special attention to natural disaster coverage when taking out building insurance. The Pegnitz River and its tributaries have repeatedly caused flooding in the past, and neighborhoods such as Mögeldorf, Laufamholz, and Wöhrd are located in flood-prone areas. Heavy rainfall events are also increasingly affecting areas away from bodies of water.

Since the 2021 flood disaster in the Ahr Valley, many insurers have tightened their terms for natural hazard coverage-those in ZÜRS zones three or four should seek quotes early, as some insurers no longer issue new policies in high-risk areas. We also recommend having the 1914 value verified by the insurer after any major renovation and comparing your insurance coverage with a current market comparison at least every five years. When switching insurers, the old policy should only be canceled after the new contract has been activated to avoid gaps in coverage.

Frequently Asked Questions About Building Insurance

Is building insurance required by law?

There is no legal obligation to have building insurance in Germany. However, banks regularly require proof of residential building insurance as a prerequisite for granting a loan when financing real estate. In condominium associations, the association must ensure adequate insurance for the common property in accordance with Section 19(2)(2) of the German Condominium Act (WEG), which includes building insurance.

What is the difference between building insurance and contents insurance?

Building insurance protects the building itself and all permanently installed components-that is, walls, roof, windows, heating, and permanently installed flooring. Home contents insurance, on the other hand, covers movable property within the home, such as furniture, appliances, clothing, and personal belongings. Both types of insurance complement each other and should be held together to ensure comprehensive coverage.

Can building insurance be canceled when the property changes hands?

When a property is sold, the existing building insurance automatically transfers to the buyer under Section 95 of the German Insurance Contract Act (VVG). The new owner then has a special right of termination and may cancel the contract within one month of registration in the land registry in order to take out their own policy. We recommend reviewing the existing policy before the purchase and comparing terms and conditions before exercising the special right of termination.

Is water damage caused by a defective heat pump covered?

That depends on the terms of the contract. Damage caused by tap water-i.e., water leaking from burst pipes or leaks-is generally covered by home insurance. Damage to the refrigerant circuit of a heat pump itself, however, is often excluded and must be covered by a separate machinery or electrical appliance insurance policy. Be sure to clarify this explicitly when taking out the insurance.

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