Sectional title insurance can be a little confusing and, as a new owner, you may be tempted to just assume your body corporate has you covered. While this may be the case, understanding the extent of your coverage and your personal liability is the only guaranteed way to protect yourself against potentially costly oversights.
While you don’t have to be an insurance expert, Bill Rawson, Chairman of the Rawson Property Group, suggests paying close attention to these five need-to-know factors.
Who pays for sectional title insurance?
“Sectional title insurance is a legal requirement for all developments,” says Rawson, “which makes it a non-negotiable expense. The costs are typically shared by all section owners and are factored into the monthly levies. They are then paid out of these pooled funds by the Body Corporate.”
While the cost of this insurance is shared, it’s not necessarily shared equally, and contributions are typically based on a unit’s participation quota.
“Exceptions to this rule can be made if a particular unit’s replacement value has increased, and the owner – or their bank – wants to ensure they are adequately covered,” says Rawson. “The additional cost would then be paid by that unit’s owner above and beyond their normal participation quota.”
What does sectional title insurance cover?
“At the very least, your sectional title insurance should cover all residential sections and common property for their full replacement value in the event of damage or destruction from things like fire, flooding, earthquakes, burst pipes and rioting,” says Rawson.
“Your Body Corporate can choose to extend that basic coverage to include things like third-party liability, or the cost of alternate accommodation if a section becomes uninhabitable due to an insured event. This can be good idea, but does need to be carefully considered and agreed upon by all parties.”
Rawson advises all section owners request a copy of the Body Corporate’s insurance policy to make sure they feel comfortable with the cover provided.
“If you’re not convinced your development’s coverage is adequate, bring it to the attention of the Body Corporate right away.”
How to cover the rest
“It’s extremely important to note that sectional title insurance only covers the ‘brick and mortar’ part of residential sections and common property,” says Rawson. “It excludes any moveable contents like furniture and décor pieces, which must be insured by section owners or their tenants in their private capacity.”
The most accurate way to adequately insure your home contents is to compile an inventory and estimate the replacement costs for each item.
“This can be time-consuming to do the first time around,” says Rawson, “but is reasonably easy to update on an annual basis, and is the safest way to avoid disputes with your personal insurer if you have to make a claim.”
Keeping your coverage current
As with any other type of insurance, sectional title policies need to be reassessed and updated annually. Section owners are advised to check that this happens at their Body Corporate’s AGM.
“Most specialist sectional title insurers offer complementary valuations for new policies,” says Rawson, “but these should be revisited by the Body Corporate before every AGM. This provides an opportunity to adjust coverage for things like inflation, rising building costs and improvements to common property or individual units. It’s not a bad idea to get another professional valuation done every few years as well, just to make sure you haven’t strayed too far from realistic replacement values.”
Understanding your excesses
Even the best insurance will have excesses that need to be paid by somebody. The standard rule (defined in the Prescribed Management Rule 29 (4) in the Sectional Titles Act) is that the section owner who is claiming from insurance must pay the excess. This can, however, cause disagreements in some situations.
“There are cases where damage to one unit is caused by another unit,” says Rawson, “for example, if a tap is accidentally left on and water floods into the unit below. It would seem very unfair to expect the owner of the flooded unit to pay the insurance excess, which is why some Body Corporates pass special resolutions to cater to these types of situations.”
There are also insurance products on offer that can negate these problems, so Rawson advises having a good look at your policy to see what rules apply to you.
“The main thing to remember is the better informed you are, the more likely you are to be able to spot a potential problem, and the smoother things will go if you do have to file a claim,” says Rawson. “If you have any doubts or queries, ask an insurance expert to look over your sectional title policy, or request an explanation from a knowledgeable body corporate trustee.”