Home contents insurance vs building insurance

Know the difference and always check with the owners association if the annual service fee covers insurance premiumDr Reyadh Al Kabban

The unfortunate fire incident at The Torch at Dubai Marina in February has been an eye-opener for residents of Dubai, who are increasingly concerned about the safety measures adopted by their building management. The Torch’s residents were in for a surprise when there was speculation that the building insurance would not cover the lost property and  personal belongings.

Here are the typical types of insurances available in the market and how they impact owners and tenants alike.

Building insurance

As owners of units in a commercial or residential tower, it is important to confirm with the building management whether or not the building has been insured and the extent of the protection provided under the insurance. Despite owners believing that their units are structurally insured by their payments towards a building insurance policy via annual service fees, some might be surprised to learn that the majority of buildings are either underinsured or not insured at all.

Law No. 27 of 2007 concerning ownership of jointly owned property in Dubai imposes an obligation on owners associations (OA) to insure the building. Article 22 of Law No. 27 of 2007 states that unit owners must pay an annual service fee to the OA. The annual service fee is determined after taking several factors into consideration, including insurance of the
building, and the OA is compelled to deposit a copy of the building insurance policy with the Real Estate Regulatory Agency (Rera).

Article 28 of Law No. 27 of 2007 states that an OA is required to procure insurance to cover the repair or reconstruction of the jointly owned property in the event of any destruction and damage for any reason provided.

It is advisable to check with your respective OA whether the annual service fee includes the insurance premium. The unit owners are within their legal right to request copies of the building insurance policy from the building management or OA in order to choose an appropriate insurance plan that will safeguard their premises and personal belongings.

If owners are refused access to copies of the building insurance policy, they can register a complaint with the OA Section at Rera. There have been instances wherein the OA failed to procure insurance for the building or underinsured the building to save cost or pocket the
money collected from unit owners. Ensure that your OA is registered with Rera as an entity. Only after being registered with Rera will the OA be entitled to collect service fees from unit owners.

Most buildings may not have an insurance policy as such; it may be worthwhile for building unit owners to take out their own insurance policies that cover not only unit contents but also the internal structure of the unit itself to provide comprehensive protection that the
building insurance may not.

Contents insurance

Statistics indicate that the majority of residents in Dubai do not have contents insurance, with recent figures showing only 6 per cent of residents having such a policy. The reason behind these low figures can be attributed to several factors, including ignorance, the belief
that it is the obligation of the landlord to insure the premises, high cost of annual premiums and misconception that personal belongings are not worth insuring.

Owners of units and tenants need to realise that a building management controlled by the developer will always opt for an insurance policy that will secure its position and considerably reduce costs. Usually, the building management does not assume responsibility for the financial loss suffered by owners or tenants as personal belongings and unit contents are not covered under the building insurance.

It is unlikely, and unexpected, for a unit owner leasing an unfurnished unit to provide the tenant with a contents insurance policy. When leasing a furnished property it is recommended to enquire about the unit’s contents insurance policy and the extent of the  coverage as there might already be a comprehensive insurance policy in place for the contents of both the tenant and the owner.

However, this comes down to the relationship between the two and could potentially become a deciding factor when tenants search for accommodation, given the awareness raised by the recent fire incident.

Contrary to belief that the annual premiums are a huge burden on the pockets of salaried individuals, the options available in the market today are varied and can be customised to individual requirements for as little as Dh300 a year.

Source: Dr Reyadh Al Kabban


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