What happens if the body corporate is underinsured?

If the body corporate's insurance is inadequate to cover a major loss, the shortfall becomes a liability of the body corporate — which means all lot owners are responsible for making up the difference, typically through a special levy. For example, if a building costs $5 million to rebuild but is only insured for $3 million, the owners collectively face a $2 million shortfall after a total loss — in addition to the disruption of the event itself. This risk has grown significantly in recent years due to rapid construction cost inflation outpacing insured values. If you believe the scheme is underinsured, raise it in writing with the committee and request an updated independent insurance valuation. This is one of the most important financial risks to monitor in any strata scheme. This article is general information only and not legal advice.