Yes, strata insurance is compulsory, and it must cover the building for its full rebuild cost.
If you own a lot in a strata scheme, the building you live or invest in is insured by the owners corporation, not by you. That single policy protects every owner, and getting it wrong can cost the whole scheme a lot of money.
This guide walks through what the policy covers, what it does not, and how to avoid the traps. We deal with strata insurers every week, so we have seen where schemes come unstuck.
What is strata insurance and why is it compulsory?
Strata insurance is a single policy taken out by the owners corporation to cover the building and common property, and the law makes it compulsory. In NSW the owners corporation must insure the building for its full replacement and reinstatement value, plus hold public liability cover, under the Strata Schemes Management Act 2015. Queensland bodies corporate carry the same duty under the Body Corporate and Community Management Act 1997.
It is not optional and it is not a discretionary committee decision. The policy is a legal obligation tied to the scheme itself.
- It is held at the scheme level, not by individual owners.
- It is paid through levies shared across all lots.
- It applies to every registered scheme regardless of size.
You can read more about the relevant rules on our legislation page.
What does a strata insurance policy actually cover?
A standard strata policy covers the building and common property for reinstatement, plus a set of liability protections that come with running a scheme. The building cover pays to repair or rebuild after an insured event such as fire, storm or water damage. The liability cover steps in if someone is injured on common property and the owners corporation is found responsible.
Beyond the building, the policy usually carries several other protections. These exist because a scheme is a legal entity with a committee and, at times, paid or volunteer workers.
- Building and common property reinstatement to full rebuild value.
- Public liability for injury or damage claims on common property.
- Office bearers liability covering the committee for decisions made in their role.
- Workers compensation and voluntary workers cover where required.
Office bearers liability matters more than most owners realise. It protects the people who volunteer to sit on your committee.
What does strata insurance not cover for owners?
The strata policy stops at the building and common property, so anything inside your lot is your own responsibility. That means your furniture, appliances, carpets in some schemes, and personal belongings are not covered by the scheme policy. If you rent your lot out, the building cover does not protect you against lost rent, tenant damage or landlord liability either.
This is the gap that catches owners after a flood or fire. The building gets rebuilt, but the contents inside do not.
| Covered by the strata policy | Owner must insure separately |
|---|---|
| Building structure and common property | Contents inside the lot |
| Public liability on common property | Personal belongings and furniture |
| Office bearers and committee decisions | Landlord cover and lost rent |
| Fixed building services and shared areas | Tenant-caused damage inside the lot |
So every owner needs contents insurance, and every investor landlord needs landlord insurance on top of the scheme cover. The two work together rather than overlapping.
How much should the building be insured for?
The building should be insured for its full reinstatement cost, which is what it would take to demolish, clear and rebuild from scratch today. That figure is not the market value of the units and it is not the original purchase price. It includes the cost of professional fees, debris removal, and meeting current building codes, all of which can shift year to year.
The only reliable way to set this number is a current building valuation prepared by a qualified valuer. Guessing, or rolling over last year’s figure, is how schemes drift into trouble.
- Rebuild, not market value, is what the sum insured reflects.
- Construction costs and code changes push the figure up over time.
- A valuation gives the owners corporation a defensible number.
We cover how often to commission one and what they include in our guide to building insurance valuations.
What happens if a strata scheme is underinsured?
Underinsurance means the sum insured is lower than the real cost to rebuild, and after a major loss the owners corporation has to find the shortfall itself. The insurer pays up to the sum insured, and everything above that lands on the owners as a large special levy. On a serious fire or storm claim, that gap can run into hundreds of thousands of dollars split across the lots.
The most common cause is simple: an out-of-date sum insured that nobody refreshed. Building costs rise, the valuation ages, and the cover quietly falls behind reality.
An out-of-date sum insured is the single biggest avoidable risk in strata insurance. A current valuation at renewal is the cheapest protection against a surprise special levy.
Costs for a valuation are typically modest relative to the protection they buy, though figures vary by building and provider. Treat any number here as a rough guide only.
How often should the owners corporation review the policy?
The policy should be reviewed at every renewal, which for most schemes means once a year. A renewal is the natural point to check the sum insured against a current valuation, confirm the liability limits still fit, and compare what is on offer from different insurers. Skipping this and auto-renewing on last year’s terms is how cover drifts out of step with the building.
A good review is not just about price. It is about whether the cover still matches the scheme as it stands now.
- Check the sum insured against a current building valuation.
- Confirm public liability and office bearers limits are adequate.
- Review the excess, exclusions and any flood or known-risk terms.
- Compare offers from more than one strata insurer.
At Coastal Realty & Strata we run this check as part of every renewal we manage, rather than leaving it to chance.
Why use someone who deals with strata insurers regularly?
Strata cover is a specialist product, and the difference between a fair policy and a poor one often comes down to who arranged it. Someone who places strata business every week knows which insurers price your building type sensibly, which exclusions to watch for, and how to read a quote properly. They can also push back when a sum insured looks wrong or a premium jumps without reason.
A general approach tends to miss the detail that costs schemes money later. The right help pays for itself at claim time.
- They match the building to insurers who actually want that risk.
- They spot underinsurance before it becomes a special levy.
- They handle the renewal paperwork and claims liaison for the committee.
This is the part of strata management Coastal Realty & Strata handles day in, day out, so committees do not have to become insurance experts themselves.
Getting strata insurance right comes down to three habits: insure the building for its real rebuild cost, back that number with a current valuation, and review the policy properly at every renewal. Do those three things and you remove the most common reasons schemes get caught short. Skip them, and the bill usually arrives at the worst possible time.
If you are not sure your scheme’s cover stacks up, our team is happy to take a look and walk you through the options. You can request a proposal and we will go from there.
