How does strata insurance work?

Strata insurance is a type of insurance designed for properties that are part of strata or community title arrangements. These arrangements typically apply to multi-unit residential buildings like apartment complexes, townhouses, duplexes, villas and units within a larger development. 

Strata insurance is a mandatory legal requirement across Australia, and each state and territory has its own specific guidelines relating to strata insurance. Generally, each property owner within the strata building shares the cost as part of their strata fees.

Strata insurance provides coverage for common property and shared areas within the building or complex.

Strata insurance payments are made to the Body Corporate of a building as part of strata fees. A Body Corporate, sometimes referred to as an owner’s corporation, is formed when a piece of land is divided into apartments or townhouses. This entity is established by the land owners - in most cases the developer.

If you happen to own a lot in an Australian community title scheme, such as an apartment or townhouse, you automatically become a member of the Body Corporate. The primary role of the Body Corporate is to oversee and upkeep the shared areas used by all residents. These areas can encompass entrances, corridors, elevators, and pools. The Body Corporate carries the responsibility not just for the physical structures but also for ensuring overall liveability. This can involve managing noise levels, parking matters, and other behavioural aspects that affect the well-being of residents in properties under strata titles.

The management of strata insurance typically falls under the responsibility of a strata manager, property manager, or a unit owner who has been designated to oversee the policy on behalf of the owners.

It's important to understand the specific coverage provided by strata insurance. This ensures that you don't run the risk of being inadequately covered by your personal insurance. 

Generally speaking, in most strata schemes, the lot (unit/apartment) owner owns and is responsible for the airspace and everything in it within the boundary of the unit.

Residential strata insurance offers coverage for apartments, townhouses, duplexes, villas and units. In case of loss or damage, this type of insurance typically provides protection for:

• Contents in common areas such as shared outdoor furniture and gym equipment
• Building fixtures such as pipes, hot-water systems, intercoms and air-conditioners
• Shared property spaces including gardens, lobbies, car parks, pools and stairwells
• Public liability insurance covering common property

In this context, “common areas” could include spaces for recreation, like pools or gyms. “Fixtures” may encompass things such as doors, built-in air-conditioning, and hallway decorations. “Shared property” can pertain to features like sealed driveways and stairwells.

Some insurers might also include extra benefits in their coverage for losses and damages. These could involve expenses for debris removal, temporary lodging, and compensation for lost rental income.

Insurance claims and coverage can be complex and confusing. Here’s an example:

Normally, burst pipes in a boundary (common) wall or outside the lot are the responsibility of the Body Corporate. However, if a pipe is for the exclusive use of the lot and is located in an internal wall, then if it bursts within the lot it’s the owner’s responsibility (e.g. a pipe in an internal wall feeding the shower). If a pipe located in an internal floor bursts and the pipe services more than one lot, it is the Body Corporate’s responsibility to maintain that burst pipe.

Let’s consider another example:

If your carpet or floating floorboards are damaged by a leak from a burst pipe in a boundary wall, above your ceiling or below your floor they're unliklely to be covered by strata insurance. You'll instead have to make a contents insurance claim (if you have a policy) or pay for the repairs out of pocket.

Why? Generally, strata insurance policies only provide coverage for fixtures that are considered part of the building's structure, which may include concrete or tile floors, your walls and your ceiling but not carpets or floating floorboards. However, the extent of coverage can differ between policies.

The specific coverage offered by a strata insurer can differ based on the provider. You’ll need to check with the Body Corporate or strata manager to find out the insurance details for your building or community complex.

How are strata insurance premiums set?

Similar to how various risk factors affect premiums for home or comprehensive car insurance, there are a number of different circumstances that can potentially influence the premium for strata insurance. These include:

• The age and state of the building
• Government insurance taxes
• Past claims history of the strata property
• Risk evaluation of the neighbourhood and suburb
• Commercial activities, like holiday rentals
• The total value of shared property, building fixtures, and common area contents

If your building has a pool, gardens, lifts, a gym or other shared recreation areas, the maintenance and insurance costs for these assets may mean that your strata fees could be higher than properties with fewer features.

Strata insurance typically doesn't cover personal belongings within a property, and it also won't provide coverage for losses, theft, or damages to those belongings. If you find yourself in this situation, it may be a good idea to consider options for contents insurance, as this type of insurance is designed to safeguard your belongings.

There might be other fixtures or items that you might assume would be included in strata insurance. However, it's important to recognise that the following items are generally not covered:

• Lights
• Interior fittings and fixtures
• Floorboards and carpets
• A hot water unit exclusive to your specific lot

However, if a strata complex has a shared gas or electric hot water system located in the common area of the building, which supplies hot water to all units, this is considered a “common hot water system” and falls under the responsibility of the strata for maintenance and repairs.

Additionally, it's worth noting that strata insurance typically won't provide coverage for damages specifically related to landlords. In such cases, exploring landlord insurance options could be beneficial. This type of insurance might offer coverage for scenarios like loss of rental income, property and contents damage, rent defaults, and more.

Conversely, renters’ insurance is a type of contents insurance specifically for tenants. It doesn’t cover the home itself, but it does offer protection for personal items such as your furniture and valuables.

What's the difference between contents insurance and strata insurance?

Although home or strata insurance might provide coverage for your property's structure in cases of fire, flood, or similar events, it doesn't extend to covering the loss or damage of your furniture and belongings. This is where contents insurance can be useful.

Contents insurance safeguards your belongings against damage or theft, ensuring that they can be repaired or replaced if a covered event occurs. Often, contents insurance can be combined with home insurance, creating a comprehensive home and contents insurance policy. However, it's also available as a separate policy, catering to apartment owners and renters alike.

Moreover, contents insurance can encompass legal liability. For instance, if someone accidentally gets injured within your apartment, your policy may cover the associated liability. You might also consider adding accidental damage insurance to your policy, which can help protect against unforeseen events like a pet knocking over the TV or a spill on an expensive couch by a visiting child.

Additionally, you may have the option to add on portable contents insurance, which covers the loss or damage of your home's contents even when you take them beyond your property, such as engagement rings or mobile phones.