How Does Apartment Insurance Work?

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CrashAndBurn

668 posts

Ultimate Geek

#245359 31-Jan-2019 06:59

Am considering of getting an apartment hence doing my research on ongoing cost. Based on some of the BC levies I have seen so far. A good chunk goes to the insurance of the building. My question now is in the event that something happens either partially or in full to the building. What happens next? Does each unit owner get paid and by how much? Which leads to my next question. Does this mean all I need would be to get contents insurance?

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#2170529 31-Jan-2019 08:02

If it’s a unit title apartment complex and the body corporate holds the insurance for the building (which is how it should be set up) then the body corporate should receive the insurance payment. It then has to be put towards the repairs, unless the body corporate members pass a resolution to distribute the money (or the court orders it).

The body corporate might also have contents insurance (and can take out other insurance), but that would most often just be to cover any chattels in common ownership, and you would still be responsible for insuring your contents, car, mortgage protection, etc.

Edit: clarification.

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CrashAndBurn

668 posts

Ultimate Geek

#2170531 31-Jan-2019 08:08

froob: If it’s a unit title apartment complex and the body corporate holds the insurance for the building (which is how it should be set up) then the body corporate should receive the insurance payment. It then has to be put towards the repairs, unless the body corporate members pass a resolution to distribute the money (or the court orders it).

The body corporate might also have contents insurance (and can take out other insurance), but that would most often just be to cover any chattels in common ownership, and you would still be responsible for insuring your contents, car, mortgage protection, etc.

Edit: clarification.

In the event that it ends up with distributing the money. How would I know if what I would get is enough e.g. same or close to what I paid for the unit.I have this feeling that it would most likely be lower but how low. For instance, if i paid 400k, what are the chances that I would get at least 350K.

froob

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#2170541 31-Jan-2019 08:16

That’s not something that I can give odds on, but the best way to make sure you are not badly out of pocket is for the body corporate to hold an appropriate level of insurance. For instance, does it have full replacement insurance (which meets the cost of repair rather than the indemnity value), is the total sum insured enough (or is the apartment complex underinsured, what is the excess amount, are there any excluded risks and what are they?

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CrashAndBurn

668 posts

Ultimate Geek

#2170545 31-Jan-2019 08:21

froob: That’s not something that I can give odds on, but the best way to make sure you are not badly out of pocket is for the body corporate to hold an appropriate level of insurance. For instance, does it have full replacement insurance (which meets the cost of repair rather than the indemnity value), is the total sum insured enough (or is the apartment complex underinsured, what is the excess amount, are there any excluded risks and what are they?

Thanks. Hopefully I find answers to those questions once I find an apartment I like. I'd just thought that there is some sort of legislation that makes it mandatory for an apartment to be insured to current value of replacing the whole building.

alasta

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#2170546 31-Jan-2019 08:24

I am not intimately familiar with the Unit Titles Act, but from all accounts it's a bit of a dog and needs updating. This is why you need to do your due diligence on the particular body corporate that you're considering buying into, in order to ensure that they have adequate insurance and a financial provision for their long term maintenance plan.

OldGeek

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#2170620 31-Jan-2019 10:22

The principle of a unit title property is that the Body Corporate owns all the common area, which is basically everything on the property up to the doorway of each unit. The Body Corporate is the vehicle used to vest everything that all unit owners own equally. This includes the roof, exterior walls, windows etc. of each building as well as footpaths, lawns, walkways etc.

From this, the Body Corporate will have insurance coverage arranged (a requirement of the Unit Titles Act) and as a consequence there should be advice to unit owners on insurance coverage needed that the Body Corp insurance does not cover.

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bmt

574 posts

Ultimate Geek

#2171036 31-Jan-2019 22:24

I own an apartment and have NFI about the insurance details other than you need to have your own content insurance (same as you would have separate house and contents insurance for a house), and that the insurance covered by your body corporate fee should be the same as any normal house insurance in that it covers the physical structure. As for the reality...

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froob

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#2171103 1-Feb-2019 08:18

CrashAndBurn:
froob: That’s not something that I can give odds on, but the best way to make sure you are not badly out of pocket is for the body corporate to hold an appropriate level of insurance. For instance, does it have full replacement insurance (which meets the cost of repair rather than the indemnity value), is the total sum insured enough (or is the apartment complex underinsured, what is the excess amount, are there any excluded risks and what are they?

Thanks. Hopefully I find answers to those questions once I find an apartment I like. I'd just thought that there is some sort of legislation that makes it mandatory for an apartment to be insured to current value of replacing the whole building.

There is a requirement in the Unit Titles Act for multi-unit buildings like apartments to be insured by the body corporate for their full replacement value, or full indemnity value if replacement value insurance isn’t available in the market. But, that isn’t any guarantee that the legal requirements are actually being compiled with, unfortunately.

Edit: There are also multi-unit buildings that sit outside the Unit Titles Act scheme that can have different requirements.

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howdystranger

152 posts

Master Geek

#2171145 1-Feb-2019 09:49

I live in an apartment in Wellington. It was quite complicated when the Kaikoura earthquake happened... there was damage both to the communal areas and individual apartments. But if you have a half-way decent body corporate, and professional body corporate manager and building manager they will sort it out.

Fred99

13684 posts

Uber Geek

#2171154 1-Feb-2019 10:03

Could some apartment owners give examples of body corporate fees they pay, including the proportion of those used for building insurance, and approximate (replacement or indemnity) value of the apartment.

bmt

574 posts

Ultimate Geek

#2172408 3-Feb-2019 19:49

My Body Corp's projected expenditure for the first year was $229k - $57k was for insurance. Average $2400 annual fee per apartment (which is almost exactly what mine is).

CrashAndBurn

668 posts

Ultimate Geek

#2172414 3-Feb-2019 19:57

bmt:

My Body Corp's projected expenditure for the first year was $229k - $57k was for insurance. Average $2400 annual fee per apartment (which is almost exactly what mine is).

From this example. How would potential buyers or even owners know if the building is under or over insured. I have seen the minutes for an apartment I was looking at and it says 427k budget for the year with 91k going to insurance.

Basil12

110 posts

Master Geek

#2172438 3-Feb-2019 21:18

CrashAndBurn:

From this example. How would potential buyers or even owners know if the building is under or over insured.

Most insurers would require an insurance valuations every two or three years - these are from a valuer and are intended to show the cost of replacement of the building plus demolition costs and can help the insurance to be enough to rebuild. Unfortunately in the Canterbury earthquakes some of these were seen to be woefully inadequate.

Some Body Corporate specific policies will provide cover over and above the sum insured; these would be expected to provide greater protection.

Note that the monies will typically be paid to the Body Corporate to rebuild rather than pay you out.

Wheelbarrow01

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#2172522 4-Feb-2019 00:30

To answer your original question "How does apartment insurance work?", the answer is sometimes it doesn't.

This case study of an apartment block that suffered damage in the Canterbury earthquakes illustrates my point beautifully.

11 out of the 50 apartment owners died whilst waiting for the insurance payout. The insurance company has since settled with (and paid out to) the body corporate, but now the remaining owners are arguing over who will get what, and without a unanimous decision it's likely heading back to court.

CrashAndBurn

668 posts

Ultimate Geek

#2172539 4-Feb-2019 06:46

Wheelbarrow01:

To answer your original question "How does apartment insurance work?", the answer is sometimes it doesn't.

This case study of an apartment block that suffered damage in the Canterbury earthquakes illustrates my point beautifully.

11 out of the 50 apartment owners died whilst waiting for the insurance payout. The insurance company has since settled with (and paid out to) the body corporate, but now the remaining owners are arguing over who will get what, and without a unanimous decision it's likely heading back to court.

This is interesting as one of the documents provided to me shows how much percentage each unit pays in terms of the BC levy. I thought it would be as easy as using the same percentage when splitting the insurance payout?

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