Body corporate insurance is a safeguard that will protect both you and your property as a lot owner. It provides general insurance cover for the common property and assets which are managed under a body corporate scheme. Lot owners share the premiums for body corporate insurance, usually as part of their body corporate fees and levies.
While body corporate insurance has been around for a long time, there are a lot of misconceptions floating around about what it is, what it covers and how it works. If you’re unsure about the exact scope of body corporate insurance, it’s important to find out. Here are some common beliefs many people hold about body corporate insurance – as well as the truth.
Belief #1 – Body corporate insurance is optional
Once you move into a body corporate property, the choice to insure or not is taken out of your hands. Not only must you insure, but each body corporate scheme must insure the common property and body corporate assets to the greatest practicable extent to cover any damage and all costs associated with the reinstatement or replacement of the building. You must insure your body corporate building, whether you like it or not, and you’ll need to be able to commit to this before you move into the property.
This is necessary for a number of reasons; the main one being that lot owners cannot be negatively affected by another lot owner’s failure to take out insurance. Imagine if the building was damaged by fire and needed to be replaced or significantly repaired. How do you do that if some owners took out building insurance and some didn’t? Clearly in circumstances such as a communal living building, every owner needs to contribute to insurance to protect the investment of all the owners, not just some. As well, banks need the certainty that the building is insured before granting mortgages.
This is not something that is likely to ever change either – body corporate insurance will always be mandatory.
Belief #2 – Body corporate insurance will cover the contents of my home
Unfortunately, this is not true – body corporate insurance will only cover the common property and body corporate assets, which can include fixtures and improvements and the contents of common areas. Body corporate insurance will cover each building in which a lot is located, the common walls between adjoining lots, and body corporate assets such as:
- Fixed tiles
- Built-in cupboards
- Ducted air conditioners (but not mobile air conditioners for particular lots)
- Cook tops
- Bench tops
- Shower screens
However, body corporate insurance will not cover the contents of your home, including the following:
- Household appliances
- Air conditioning
- Curtains and blinds
- Light fittings
- Personal equipment and valuables
You will need to take out an extra insurance plan to cover items such as these, so don’t fall into the trap of thinking that your household contents are covered once you’ve taken out body corporate insurance.
Belief #3 – The amount of body corporate insurance I must take out can be negotiated
Body corporate insurance needs to be for a certain sum, so usually cannot be negotiated. Bodies corporate in Queensland must ensure that their policy meets particular minimum requirements and that it is insured for the correct amount. To determine the correct amount, you need to know the current value of the property, as the sum insured for must be higher than the value of the buildings. The law requires that all buildings are insured for their full value at the time of the loss, not at the time when the insurance policy was first taken out, so it’s a wise idea to have a professional property valuation carried out every three years.
The insurance policy must cover:
- The cost of replacing the building to the greatest practicable extent, to its condition when new.
- Any damage which may be sustained, such as flood or storm damage, to the greatest possible extent
- The replacement of services and structures, including fences and driveways
- The cost of demolishing and removing debris from the site
- Other related costs, such as employing the services of an architect or surveyor
- The cost of any shared services
Belief #4 – Body corporate insurance will cover the rental of my property
If you intend to rent out your property, you’ll need to purchase Landlord Insurance as a separate policy to your body corporate insurance. This policy provides insurance protection for your liability as a landlord, and will cover:
- The landlord’s contents
- Loss of rent due to an insured peril
- Other benefits
General body corporate insurance will not cover events arising from a rental situation. Body corporate insurance and Landlord insurance will also not cover the tenants involved in a rental situation. Tenants will need to arrange their own Contents insurance to ensure they are covered.
Belief #5 – If I break my arm carrying out volunteer work at my strata complex, I’ll be covered by body corporate insurance
While the body corporate insurance policy must cover personal accident insurance for injury to voluntary workers who are carrying out tasks on behalf of the owner’s corporation, there is a lot of confusion surrounding what this actually covers. Personal accident insurance will cover the owner’s corporation in the event of the illness, injury or death of a person on the property; however most people are unaware of the limits to this cover.
Residents of body corporate schemes often volunteer to do useful jobs around the property, and unfortunately sometimes can sustain unexpected injuries. However, personal accident insurance is only really designed to cover very serious accidents that have a significant and detrimental effect on the quality of life. It is not actually designed to cover minor injuries such as a sprained ankle or a broken leg or the cost of treatments that may be required to deal with such injuries.
Get the facts
As with anything, it’s wise to do your research before assuming what you have heard is correct. If you’d like advice about any matter relating to body corporate insurance, Capitol BCA, the leaders in body corporate management, are happy to help. Contact us here.