Sectional title insurance: The various types your scheme should consider

Insurance may seem like a grudge purchase to some but in sectional title schemes it is worth every cent. In addition, the trustees have a fiduciary duty to ensure that the scheme is comprehensively insured and that all compulsory insured perils are covered as required in terms of the Sectional Title Schemes Management Act (STSMA).

Let’s consider the various types of insurance cover available to sectional title schemes:

Insurance cover for replacement purposes

This kind of insurance cover is compulsory for sectional title schemes. The trustees are responsible to ensure that the policy is renewed every year and that the members approve the replacement values at the AGM.

Insurance cover for replacement purposes is the most important insurance for a sectional title scheme as it covers extreme events such as fire or storm damage that may cause serious damage to the structure of the building. This kind of policy normally includes cover for other eventualities such as damage caused to gates, theft, water damage to units, etc.

Without an insurance certificate from the scheme’s insurance broker confirming the scheme’s insurance cover, a bond will not be issued in favour of a potential purchaser.

The annual premium is included in the budget of the scheme according to which each member of the scheme pays a proportionate share towards the cost of the insurance by way of their levies.

Geyser cover

As geyser claims are often the most common in sectional title schemes, sufficient cover for geyser replacements is crucial. Geysers can be quite expensive and without adequate cover some owners may be unable to replace their geysers when something goes wrong.

Not all insurance policies are structured in the same way; some policies will require a higher excess payment by the claimant and others will have restrictions on the maximum amount payable for the replacement of a geyser. Irrespective, the claimant will be responsible for the excess payment along with any shortfall in the cost of installing a new geyser.

Fidelity cover

Where a large amount of money is being managed, there is always the risk of fraud. Whether the misappropriation of funds was committed by one of the trustees, the managing agent or anyone else who has been given access to the bank account of the scheme, fidelity cover provides the body corporate with piece of mind. This kind of insurance has been compulsory for schemes since the October 2016 legislation.

Liability cover

Liability insurance provides cover against claims by anybody who has suffered bodily harm or injury on the common property of the complex. This kind of cover is compulsory for sectional title schemes.

The minimum required liability cover for a body corporate is R10 million. Aside from having liability cover, trustees must still ensure that the correct signage and health and safety requirements are in place on the common property. Proactive common property maintenance will further help to prevent any injuries as a result of damaged fixtures and equipment.

Arrear levy cover

Bodies corporate can easily find themselves under financial pressure when owners are in arrears with their levy payments as it may leave the scheme unable to pay its service providers. Without close management of the scheme’s finances, such a situation can quickly spiral out of control.

Arrear levy insurance is a stand-alone product that will help with this kind of cash flow predicament. All the members in the scheme will contribute to the policy and a claim against arrear levies will then be paid for those owners who are in arrears.

This kind of cover is inexpensive and can be a welcome lifeline to those schemes that continuously find themselves in a cash flow difficulty due to poor levy payers.

Subsidence and landslip cover

While subsidence cover is not compulsory, complexes that are located on steep hills with a high gradient will do well to ensure that they have this kind of cover. Schemes that are located near mining operations or in areas where sinkholes are known to appear will also be well advised to have this cover in place.

Conclusion

Dealing with insurance-related issues can be a daunting task for many trustees. It is always suggested that trustees use an insurance broker who specialises in sectional title insurance and who can assist them in making the best and most responsible decisions for their scheme.