Strata insurance explained: what the building policy covers and what you need

The owners corporation's duty to insure

Every state and territory has strata legislation that makes the owners corporation responsible for insuring the building. The details differ: what counts as the building, the minimum public liability cover, and whether the building must be insured for its full replacement value. These requirements are why unit owners do not buy separate building cover.

The strata manager or secretary should be able to give you a copy of the current certificate of currency and the policy wording. Ask for them when you buy, because they tell you exactly where the strata policy stops and your own insurance has to start.

What the law requires in NSW, Victoria and Queensland

NSW Fair Trading states plainly that strata insurance is mandatory in NSW. Under the Strata Schemes Management Act 2015, the owners corporation must insure the building for rebuilding or replacement to as-new condition, including professional fees and debris removal, and the regulations set the amount as the estimated cost plus 24 months of cost escalation. Public liability cover must be at least $20 million, and workers insurance is required unless an exemption applies. Some two-lot schemes can be exempt from the building insurance requirement.

Victoria and Queensland set similar duties in their own legislation, with different liability minimums. Tasmania, South Australia, Western Australia and the territories have their own strata or community title laws; check your state's rules and your scheme's policy.

NSW Fair Trading also recommends a new building valuation by a qualified valuer every 2 to 5 years so the sum insured keeps pace with rebuild costs, and requires a strata manager arranging insurance to provide at least three quotes, or explain in writing why that is not possible. It warns that personal items such as furniture, electrical appliances, curtains and carpets may not be covered by the owners corporation, even when damage comes from common property.

What a strata policy typically covers

Strata policies are commercial products and vary more than home policies. The mandatory parts are set by state law; the rest depends on what the scheme buys.

• The building structure, including walls, roof, floors and, in many schemes, fixtures such as kitchens and bathrooms inside each lot.
• Common property: lobbies, lifts, stairwells, car parks, pools, gardens, fences.
• Public liability for injury or damage on common property.
• Work health and safety insurance for workers on site, where the state requires it (NSW does, subject to exemptions).
• Depending on the scheme and state: fixtures and improvements inside each lot, plus optional extras the scheme chooses to buy.

The gaps inside your lot

Your furniture, clothes and other belongings are never covered by the strata policy. You need contents insurance for them, and if you live in the unit that policy should include legal liability for your lot.

The grey zone is fixtures and improvements inside your lot, such as carpets, floating floors, blinds, light fittings and renovated kitchens. Some schemes insure them, some leave them to owners, and state law sets different defaults. If you have renovated, check whether the upgrade is covered by the strata policy at its current value.

If you rent the unit out, the owner-occupier contents policy is replaced by landlord cover for your lot: landlord contents, loss of rent and tenant damage.

Who pays the strata excess

A strata policy has an excess like any other. Whether the owners corporation pays it from its funds or passes it on to the owner whose lot the damage came from depends on the scheme's by-laws and the rules in your state, so ask the strata manager how your scheme handles it. Some contents and landlord policies include a benefit towards a strata excess charged to you. It is worth knowing which applies before a burst pipe floods two floors.

Why strata premiums rise

Strata premiums reflect the building's size, age, construction, location and claims history, and they are affected by the same catastrophe costs that drive home premiums. A building with a history of water leaks or unresolved defects is a higher risk to insure. Because the premium is paid from levies, the scheme's insurance history and valuation dates in the strata records are worth reading before you buy.