Don’t Get Caught Out: Your Essential Guide to Body Corporate Insurance in Australia

Body Corporate Insurance in Victoria

Residential Owner’s Corporation/body corporate insurance (now known as strata insurance) is general insurance that covers common property under the management of a strata title or body corporate entity. These properties can either be: 

• Managed by a body corporate manager: Larger properties with many units typically employ a body corporate manager.
• Self-managed: This is typical for smaller properties, usually with 10 units or less, where a body corporate manager isn’t necessary.

Owners of each unit title typically share the premium costs of strata building insurance as part of their strata insurance premium and liabilities. Holding compliant & appropriate insurance is MANDATORY under each state’s legislation.  

Essential Body Corporate Insurance Knowledge for Every Unit Owner

Imagine a severe storm damaging the roof of your building or a fire breaking out in a common area. Without body corporate insurance, the cost of repairs and replacements would fall on individual owners, potentially leading to significant financial burdens and disputes. This insurance acts as a collective shield, ensuring that funds are available to restore the property and protect the interests of all owners.

What Does Body Corporate Insurance Cover?

Body corporate insurance typically provides comprehensive coverage across several key areas:

• Building and Common Property: This forms the core of the policy, covering damage to the building’s structure, including walls, roofs, foundations, and shared areas like hallways, lifts, pools, gyms, car parks, and gardens. It ensures that the physical integrity of the property is protected against various perils, such as fire, storm, water damage, and vandalism.

• Public Liability: This component protects the body corporate against legal liability for injuries or property damage that occur on common property. For instance, if a visitor slips and falls in the common hallway or a tree branch from the shared garden damages a parked car, this insurance covers the legal costs and potential payouts.

• Additional Coverage: Many policies go beyond the basics, offering valuable extras like:

  • Office bearers’ legal liability
  • Voluntary workers insurance
  • Fidelity guarantee
  • Machinery breakdown
  • Catastrophe insurance
  • Lot owners’ improvements
  • Legal defence expenses
  • Government audit costs
  • Appeal expenses
  • Common property contents

Understanding the Minimum Requirements

While the specifics vary between states and territories, most jurisdictions mandate that body corporates have:

• Reinstatement and Replacement Insurance: This covers the full cost of rebuilding the property to a condition substantially the same as new, without any deduction for depreciation. It ensures that the building can be restored to its original state after a major incident.
• Public Liability Insurance: This covers the body corporate’s legal liability for third-party injuries or property damage. Minimum coverage levels are usually in the tens of millions of dollars to protect against significant claims.

What Body Corporate Insurance Doesn’t Cover

It’s crucial to recognise that body corporate insurance has limitations. It typically excludes:

• Contents and Personal Belongings: The policy focuses on the building and common property, not the contents within individual units. You need separate contents insurance to protect your personal belongings, furniture, appliances, and valuables.
• Landlord Liabilities: If you rent out your unit, the body corporate insurance doesn’t cover your responsibilities as a landlord. You need landlord insurance to protect against tenant-related risks like property damage or loss of rental income.
• Specific Risks and Features: Policies may have specific exclusions, such as damage from floods, earthquakes, or landslides. They may also exclude certain property features like fencing, retaining walls, or swimming pool solar heating.
• Gradual Damage: Damage that occurs gradually over time, like wear and tear, rust, or mould, is usually not covered.
• Defective Workmanship: Damage caused by faulty construction or poor workmanship may also be excluded.

Determining the Right Level of Cover

Choosing the appropriate sum insured is crucial to avoid underinsurance. The sum insured should reflect the full replacement cost of the building and common property, including associated costs like debris removal, demolition, and professional fees.

It’s recommended to add a buffer of 10-20% to account for unforeseen expenses and potential increases in construction costs. Regular professional valuations (typically every five years) are essential to ensure the sum insured remains adequate.

Factors Influencing Premiums

Each insurer develops and offers a unique commercial product in accordance with its underwriting appetite. Some common factors contributing to the premium include:  

• Building Characteristics
• Location
• Claims History
• Occupancy and Use
• Common Property Features
• Security
• Excess
• Government Taxes
• Insurer’s Underwriting Appetite

Where to Purchase Body Corporate Insurance

Several avenues exist for purchasing body corporate insurance:

• Specialist Insurers
• Insurance Brokers
• Online Comparison Websites
• Body Corporate Managers

Is Body Corporate Insurance Enough?

While essential, body corporate insurance is only one piece of the puzzle. You also need contents insurance to protect your personal belongings and, if applicable, landlord insurance to cover your tenant-related liabilities.

Key Takeaways

• Body corporate insurance is a mandatory requirement for most strata schemes in Australia.
• It protects the building, common property, and the body corporate against various risks.
• It doesn’t cover the contents of individual units or landlord liabilities.
• Ensure the sum insured reflects the full replacement cost of the building and common property.
• Understand the policy exclusions and consider additional coverage if needed.
• Specialist insurers and brokers can provide expert advice and assistance.
• Grasping the fundamentals of body corporate insurance means you can confidently fulfil your responsibilities as a unit owner, safeguard your investment, and contribute to a well-protected and harmonious community.