What Is Strata Insurance and How Does It Work?
Understand strata insurance: what it covers for shared properties, its limitations, and how it differs from your personal policy.
Living in a shared community, such as a condominium or a housing development with a homeowners association (HOA), involves a unique approach to property ownership. Unlike single-family homes, these multi-unit dwellings have common areas and shared structures that require collective protection. In the United States, this specialized insurance is typically known as an HOA master policy or condo master insurance, providing a financial safeguard for the collective interests of all residents.
Understanding Strata Insurance
A master policy, held by a condominium or homeowners association, serves as the primary insurance for shared properties. Its purpose is to protect the community’s collective assets, including buildings, common areas, and shared amenities. This coverage is generally a mandatory requirement for most shared living arrangements, ensuring that the structural integrity and communal spaces are protected against unforeseen events.
The association, not individual unit owners, holds this policy. It acts on behalf of all unit owners, procuring and managing this comprehensive policy. Collective coverage through a master policy shields all unit owners from financial burdens related to damage or liability in shared spaces.
Scope of Coverage
A master insurance policy provides coverage for the physical structures and common property within a shared community. This encompasses the building’s exterior, including roofs, foundations, and common walls, as well as shared spaces like lobbies, elevators, fitness centers, and swimming pools. Property coverage addresses damages resulting from perils like fire, theft, vandalism, and various natural disasters.
The policy also extends to structural elements within individual units, such as walls, floors, ceilings, and original fixtures. The specific extent of this coverage can vary, with some policies providing “bare walls” coverage for only the building structure, while others offer “single entity” or “all-in” coverage that includes built-in property like cabinetry and appliances within units.
Master policies include a liability component, protecting the association from claims arising from incidents on common property. If someone is injured in a shared area, the association’s liability insurance can help cover legal expenses, medical bills, and settlements. This protects the association and its members from unexpected legal challenges.
What Strata Insurance Does Not Cover
While comprehensive, a master insurance policy has limitations. It generally does not cover personal contents or belongings within an individual unit. Items such as furniture, electronics, clothing, and other personal possessions are excluded from the association’s master policy.
The master policy also does not usually cover a unit owner’s personal liability for incidents occurring solely within their unit. For example, if a guest is injured inside a private unit, or if the owner accidentally damages a neighboring unit, the master policy might not provide coverage. These limitations highlight the necessity for unit owners to secure their own separate insurance policies to fill these coverage gaps.
Individual Unit Owner’s Insurance
Given the limitations of a master policy, individual unit owners need their own HO-6 policy, or condo insurance. This individual policy is designed to protect what the master policy does not, providing a crucial layer of personal financial security. Mortgage lenders or the condominium association often require unit owners to carry this type of insurance.
An HO-6 policy covers personal belongings inside the unit, protecting them from perils such as fire, theft, and vandalism. It also extends to improvements or alterations made to the unit by the owner, ensuring that any upgrades beyond the original developer-installed fixtures are covered. This policy provides personal liability coverage for incidents that occur within the owner’s unit, safeguarding against claims if someone is injured or property is damaged due to negligence. Loss of use coverage is also common, covering additional living expenses if the unit becomes uninhabitable due to a covered loss.
Administration and Funding
The cost of a master policy is funded through regular assessments or fees paid by unit owners to their homeowners or condominium association. These fees are collected monthly, quarterly, or annually and are pooled to cover various communal expenses, including the insurance premiums. The association’s board or management team is responsible for procuring, renewing, and overseeing the policy, ensuring that coverage remains adequate and compliant with governing documents.
When an incident requires a claim, the unit owner reports damage to the association or property manager. The association then initiates the claim through its master policy, as individual unit owners generally cannot file claims directly. After documentation and assessment, the insurance payout for covered losses is usually directed to the association, which then manages the repairs or restoration of the common property.