Why insure credit shortfall?
Your bank may insist on separately insuring its interest in your unit. This cover can be included in your personal policy and your additional premium is then paid directly to the insurer and does not need to be recovered from you by the body corporate.
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Taking out independent insurance cover is less costly than through your credit provider.
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What the law says about bondholder interests
STSM Regulation 23(1) states that the insurance policies of the body corporate must -
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(a)(iii) provide cover against risks that holders of registered first mortgage bonds over not less than 25 per cent in number of the primary sections by written notice to the body corporate may require to be covered by insurance;​
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(d) include a clause in terms of which the policy is valid and enforceable by any holder of a registered mortgage bond over a section or exclusive use area against the insurer notwithstanding any circumstances whatsoever which would otherwise entitle the insurer to refuse to make payment of the amount insured, unless and until the insurer terminates the insurance on at least 30 days’ notice to the bondholder.
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STSM Regulation 23(5) further states that on written request by any registered bondholder and the furnishing of satisfactory proof, the body corporate must record the cession to that bondholder of that member’s interest in any of the proceeds of the insurance policies of the body corporate.
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