Buying a home? Know why mandatory RERA insurance matters

RERA insurance under Section 16

• Karnataka RERA orders builder to provide mandatory insurance or pay for repairs
• Section 16 of RERA requires builders to transfer insurance to buyers at handover
• Buyers can complain if builders skip insurance, seeking compliance or compensation.

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A group of homebuyers recently approached the Karnataka RERA tribunal after a fire damaged part of their building and they were unable to access the insurance documents needed for repairs. The builder had failed to provide the Section 16 insurance papers mandated under RERA.

The tribunal directed the builder to either hand over the insurance documents to the homeowners or bear the cost of the repairs.

What is mandatory RERA insurance under Section 16?

Section 16 of the Real Estate (Regulation and Development) Act, 2016 requires a promoter to take insurance for both the land title and the entire project before commencing development. The builder must pay the premium and keep the policy alive through construction and until possession. At handover, the insurance policy, premium receipts and all benefits must be transferred to the individual buyers or the association of allottees.

“This is not a formality. It is a financial safety net. The insurance covers risks such as title defects, structural damage, fire, and other project-related losses that typically surface around possession or shortly thereafter. Without it, buyers are forced to depend entirely on the builder’s willingness or financial capacity to fix problems,” said Alay Razvi, Managing Partner, Accord Juris.

Section 16 works with RERA’s five-year defect liability framework, ensuring that buyers are not left exposed during the most vulnerable phase of ownership.

The Karnataka RERA order reaffirms that this obligation is mandatory and cannot be bypassed after handover.

What risks do homebuyers face if a builder skips this insurance?

The risk is silent but severe.

“Financially, buyers may have to fund structural repairs or litigate title issues out of pocket. Legally, enforcement becomes slow and uncertain because recovery depends entirely on the builder’s solvency and willingness to comply. If the builder is financially stressed or evasive, the buyer is left with a paper decree and a real loss. In effect, the builder externalises project risk onto the homebuyer, which RERA was meant to prevent,” said Rishabh Gandhi, founder, Rishabh Gandhi and Advocates.

If the insurance was not taken, what rights and remedies do buyers have?

If a builder fails to provide the required insurance, buyers can file a formal complaint under Section 31 of the RERA Act for non-compliance with statutory obligations.

“Recent precedents, including those from Karnataka RERA, show that authorities can compel builders to either procure the insurance retroactively or pay equivalent compensation for repairs. Additionally, under the Consumer Protection Act, 2019, this omission constitutes a ‘deficiency in service’ and ‘unfair trade practice,’ allowing buyers to seek damages in Consumer Commissions,” said B Shravanth Shanker, managing partner, B Shanker Advocates LLP.

Allottees also have the right to withhold the final payment or refuse to take possession until the builder produces valid insurance certificates, as the promoter is legally bound to hand over these documents to the association of allottees at the time of the conveyance deed.

What should homebuyers do to safeguard their interests?

If homebuyers suspect non-compliance with Section 16 of RERA, they must act promptly.

“They should first demand copies of the title and construction insurance policies in writing, along with insurer details and coverage terms. Next, they should verify disclosures on the State RERA portal and preserve screenshots if insurance documents are missing. Buyers should also check land title and encumbrance records to assess risk. If the builder refuses or delays, a complaint under Section 31 of RERA should be filed seeking compliance and penalties,” said Rajeev Aggarwal, Partner, Gravitas Legal.