Insurance requirement

Insurance Requirement - The insurance requirement for real estate refers to the legal or contractual obligation to obtain specific insurance coverage for a building or property. While there is no general legal requirement for building insurance in Germany, binding insurance requirements arise from loan agreements, WEG resolutions, and individual state laws.

Statutory and Contractual Insurance Obligations

The most important de facto insurance obligation arises in connection with real estate financing. Nearly every bank requires proof of homeowners insurance with sufficient coverage as a condition of the loan-without this proof, the loan will not be disbursed. The insurance must cover at least the risks of fire, water damage, storm, and hail. Many lenders also require an assignment of insurance claims in their favor so that, in the event of a claim, the compensation is used primarily to restore the building-and cannot be diverted for other purposes.

In condominium associations (WEG), building insurance is generally required by the community bylaws or by a resolution of the owners’ meeting. The costs are apportioned among all owners via the monthly maintenance fee. Individual owners cannot opt out of this obligation, as the common property can only be insured as a single unit-individual insurance by an owner for their share of the common property is legally impossible and practically pointless.

A genuine legal insurance requirement exists in some federal states for natural hazard insurance. Bavaria is not currently among the states with such a requirement; however, discussions have been ongoing at the federal level for years regarding mandatory insurance against natural hazards (flooding, heavy rain, landslides). The current level of insurance coverage for natural hazards nationwide is only around 50 percent-in the event of a claim, this means an existential risk without protection for millions of owners.

Important Types of Insurance for Property Owners

Building insurance is the core policy and covers damage to the building itself. The sum insured should correspond to the replacement cost (floating replacement value) to avoid underinsurance. Regular adjustments of the sum insured to reflect changes in construction costs are essential - in the Nuremberg metropolitan region, construction costs have risen by 25 to 35 percent since 2020, pushing many older policies into underinsurance.

Homeowner and property owner liability insurance protects the owner against third-party claims for damages, such as if a pedestrian slips on an uncleared sidewalk in front of the property or a roof tile falls onto a parked car. The duty to maintain safety applies to every property owner and can lead to substantial claims for damages if violated. For rented properties, this insurance is strongly recommended and costs only a few hundred euros per year for an apartment building.

Natural disaster insurance supplements building insurance to cover natural hazards such as flooding, backwater, earthquakes, landslides, and snow load. Given the increasing frequency of extreme weather events, we consider this supplement indispensable, even though it is not currently required by law. Premiums vary significantly depending on the property’s ZÜRS risk zone.

Rent loss insurance (which can often be integrated into building insurance) protects the landlord against loss of rental income if the building is temporarily uninhabitable as a result of an insured loss. It covers the lost rent for the duration of the repairs, typically for twelve to 24 months.

Legal Protection and Tenancy Legal Protection

In addition to property and liability insurance, we recommend that landlords obtain legal protection insurance for landlords, which covers legal costs in disputes with tenants (rent increases, termination of lease, eviction proceedings), with contractors, or with the homeowners’ association. Tenancy disputes can quickly result in several thousand euros in legal and court costs-given this risk, legal protection insurance with annual premiums of 200 to 500 euros is a sensible investment.

Practical Tip for Property Owners in Nuremberg

In Nuremberg, property owners near the Pegnitz and the Ludwig-Danube-Main Canal, as well as in lower-lying neighborhoods such as Großreuth bei Schweinau, Gebersdorf, or Mühlhof, would be well advised to take out natural hazard insurance. The heavy rainfall events of recent years have shown that even areas outside the official flood zones can be affected-basements and underground garages in neighborhoods with dense development are particularly at risk.

Premiums for natural disaster insurance in Nuremberg range from 100 to 500 euros per year for a single-family home, depending on the ZÜRS risk zone. In high-risk areas, insurance may be more expensive or harder to obtain-in such cases, it’s worth making an early inquiry with multiple insurers through an independent broker.

We also recommend that all homeowners review their building insurance at least every three years to ensure it remains up-to-date and provides sufficient coverage. Since construction costs in the Nuremberg metropolitan region have risen significantly since 2020, many policies are now underinsured-in the event of a claim, the insurance company will then only pay a proportionate amount.

Frequently Asked Questions

Is building insurance required by law in Germany?

No, there is currently no general legal requirement for building insurance in Germany. In practice, however, it is mandatory for any mortgage, as banks require proof of insurance as a condition of the loan. In condominium associations, it is typically mandated by a resolution of the owners’ meeting or the association’s bylaws. Owners of debt-free properties are formally free to choose, but in the event of a claim-such as total loss due to fire-they bear the full financial risk themselves.

What insurance policies do I absolutely need as a landlord?

As a landlord, four types of insurance are particularly important: building insurance (covers the building), homeowner and property owner liability insurance (covers claims for damages by third parties), natural hazard insurance (covers natural disasters), and legal protection insurance for landlords (covers rental disputes). Rent loss insurance is also recommended if the property is fully financed with outside capital and the rental income is needed to service the debt.

Can the homeowners’ association switch building insurance providers?

Yes, the owners’ meeting can decide to switch building insurance providers by a simple majority. In practice, it’s worth comparing rates every three to five years, as premium differences between providers can be significant. The property manager is obligated to obtain alternative quotes and submit them to the meeting for a vote. It is important that the new contract seamlessly follows the old one to avoid a gap in coverage-especially for damages that occur after the insurance change.

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