Strata Insurance  — The Land Of A Thousand Insurances  

Strata insurance sounds so wonderfully cosmic. Unfortunately it’s not. It’s completely of the Earth. You’re thinking of strato.

So, what is strata insurance? How do I know if I need strata insurance? Can I just tack it onto any of my other myriad insurances? How much does the average person spend on insurance in their lifetime? And are any, or all, of the biblical plagues covered under strata insurance?

These are all amazing questions and definitely worth some cosmic thinking — even if strata insurance has nothing to do with life’s bigger questions.

Strata insurance is only relevant to you if you own a property that’s managed by a strata group/body corporate. If this is you, then let’s tick off that first question as answered and get down to the nitty-gritty of strata insurance.

Lets Talk About Strata Insurance, Baby — Let’s Talk About You And Me

Strata insurance is available for both residential strata and commercial strata properties and is insurance that the owners corporation (aka the body corporate) is obliged to take out to cover the structure and common features of the building.

The types of property that are managed under strata committees include:

• Units
• Townhouses
• Multi-story low- or high-rise buildings
• Villas
• Duplexes

If you don’t see your dwelling type on the list, then you don’t make it through to the next round. Sorry kiddo but you might want to read along anyway — you never know your luck in the big city when it comes to learning new stuff!

The key things usually covered by strata insurance include:

• The building: the structure; electricity, gas, and water supply
• Common areas: the lift, the foyer, the gym, the rooftop pool (lucky buggers)
• Public liability: if someone is injured in any of the common areas
• Fixtures in your apartment, if they’re part of the larger building infrastructure: ducted heating/cooling systems, fire protection systems

Strata Insurance Claims

In terms of the specifics, any of the following common claims might be made and paid out under the umbrella of strata insurance.

What’s covered by strata insurance claims:

• Storm damage: Australia is prone to severe weather events and this should cover the bulk of them — cyclone, hail, flood. (Sounds pretty biblical right? But there’s nothing about locusts or frogs!)
• Water damage: Your classic scenarios of burst pipes, leaking roofs, or dodgy plumbing.
• Glass breakage: A bit of a subsection of a claim as it often results from accidents, vandalism, or extreme weather events mentioned elsewhere in the list.
• Fire: Whether accidental or due to arson that caused significant damage.
• Vandalism and malicious damage: When it occurs in common areas, car parks, and of course the exterior of the building. Sadly, it’s rarely a Banksy that you’ll be lodging a claim for.
• Accidental damage: When damage to the insured property is caused by sudden and unforeseen circumstances. As the adage goes, ‘accidents happen,’ and the right to claim them is decided on a case by case basis.
• Impact damage: Strata buildings are covered for damage caused by third party vehicles such as a car colliding with the building or the common property. (I’m not sure where they stand on asteroids.)
• Public liability claims: Liability claims may arise if someone is injured or their property is damaged while in a common area.

As with any insurance, there are exclusions which usually extend to things that are less likely to happen. However, it’s worth noting, especially in relation to the building structure, that the bizarre and unexpected can and does happen and exclusions may include floods, landslips, and natural disasters, which may have a higher probability in your location.

Anyone who has ever battled with an insurance company before no doubt ALWAYS reads the fine print now, and this fine print might reference compliance to current building codes. It’s well worth looking into this before you find out too late that something that should be covered isn’t (or wasn’t).

While you might believe your building meets the current codes for say, cyclone-prone areas, these codes aim to protect residents’ lives rather than damage to the building — as they should! However, the building may suffer extensive damage in an event like this and that may not necessarily be covered.

So, since we’re talking about it, what kinds of things aren’t covered by strata insurance?

What’s not covered by strata insurance:

• Contents and personal items
• Accidents within your apartment

If you’re renting out your property, strata insurance also does NOT include:

• Theft (of any existing items or personal contents from your property)
• Interior damage to your property by tenants
• Legal fees resulting from taking action against tenants
• Loss of rental income if a tenant doesn't pay

Basically, any damage or accidents — no matter the cause — that occur directly within your apartment probably won’t be covered under the building’s strata insurance. Be it the hand of God or dodgy tenants, if you’re at all worried about any of these possibilities, then you should consider taking out extra coverage. Either standard home and contents insurance for yourself (in addition to the strata insurance) or, if you’re leasing your property to a tenant, landlords insurance may be a better solution for these types of issues.

While landlords insurance isn’t compulsory in Australia, many lenders may require you to have a policy. If you’re seeking a loan for an investment property, landlords insurance can protect against the loss of rent, malicious acts, and other accidental damage that might make the property — gasp! — uninhabitable.

Who pays the excess on strata insurance claims?

When an external event has occurred (for example, a hailstorm), the owner of the damaged property may be the one responsible for paying the excess. This differs when more than one lot is damaged by the event, in which case the owners corporation or body corporate will often pay the excess.

Do I need strata insurance if I already pay body corporate fees?

You might not need to personally take out strata insurance but, as previously mentioned, you may need to take out additional insurance to cover your individual property within the larger building.

As the owner of a residential strata property, you may think your strata or body corporate fees cover your share of the premium costs of insurance and therefore you’re excluded from having to buy any additional insurance.

But it’s important to inform yourself at this point what residential strata insurance does and doesn’t cover. Each state and territory in Australia has different laws regarding this type of insurance but the one thing that doesn’t differ between postcodes is the compulsory nature of strata insurance.

As a side note, the laws may apply differently if it’s a two-lot strata comprising of two buildings which are physically attached.

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Strata Insurance — Where It Can Get Complicated

Complications are inevitable with strata insurance, as it’s not always a one-size-fits-all kind of insurance. It can be dependent on a range of factors, usually detailed when each policy is drawn up.

Strata insurance premiums are calculated using the following criteria:

• Type of property
• Location
• Age of the building

All properties inevitably experience wear and tear over the years, but insurers expect a building to be maintained in a reasonably good state of repair. Buildings with defects and outstanding maintenance are often more difficult to get insured, and can attract more challenging premium increases and imposed policy conditions. Always remember: insurance companies are insuring their own investment more than yours. The higher the risk, the higher the premium. This is the one of the first laws of insurance!

If you’re still feeling a bit confused, do some further reading for a better understanding of insurance premiums, how they’re arrived at, and how you can best manage yours.

Strata Insurance — A Well-Grounded Approach

Your strata or body corporate manager will usually arrange for a strata insurance policy to be taken out on behalf of all owners in the scheme and the building will be issued with a certificate of insurance (also known as a certificate of currency). This is a document issued by an insurance company to confirm that the insurance has been obtained. It usually contains all the information about the insurance policy, including the sums insured and the expiry date.

As a strata property owner, you’re relying on your owner’s corporation to adequately insure the property and comply with the law, so if you are unsure, you can always ask to review the certificate of insurance yourself.

How efficiently your strata is being managed can be something your conveyancer or property solicitor may flag when you engage them to research the property before you buy it. If you‘re keen to engage or throw around your newfound strata insurance knowledge after you buy, you can always get involved in the administrative side of your building by joining your strata committee.

Hopefully now you’ve got a full understanding of what’s involved when residing or owning within a strata committee or body corporate arrangement and how important it is to have one or several sound insurance policies in place.

Just as with anything you’re obligated to pay for, it’s always best to get as much information as you can and ask questions if you’re still unsure. It’s good to be inquisitive and there’s no shame in wanting to understand where your money is going and what the payoff might be. When it comes to insurance premiums, it’s also sensible to read the fine print.

So, in summary — yes, you need strata insurance! And yes, insuring your largest asset from as many sides as possible may seem like overkill. However, insurance does mitigate the risk of your investment going backwards in value and, if lighting strikes, insurance gives you a soft place to land.

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