CONDOMINIUM INSURANCE

A condominium is not the same thing as a house.   In addition to some of the obvious difference, insurance is another area where homes and condos differ. Condo owners are typically responsible for insuring just a portion of their property on their own. However, rules differ from complex to complex, and it's important to ask the right questions to ensure you have proper insurance coverage.

Here are six things you need to know about insuring your condominium:

1.      What does the master insurance cover?  Owners of condominium units obviously do not own the entire complex. Typically, they own their own unit outright and share ownership of the rest of the complex with all the other owners.   From an insurance point of view, that means all individual unit owners have a collective responsibility for insuring areas of the complex owned in common -- building exteriors and hallways, the pool area, etc. A condominium association typically collects monthly dues from unit owners and uses a portion of these funds to insure common areas.  

Meanwhile, the unit owner typically is responsible for separately insuring everything within the four walls of his or her individual unit.

The condo association's master policy, as well as association rules, should spell out clearly which parts of the complex are insured through association dues and which parts are not.  There are two broad categories of master policies:

• Bare walls in. These policies cover all real property from the exterior framing inward but do not cover fixtures or installations within a condo unit. Features such as countertops, bathroom and kitchen fixtures, and flooring are not covered. If your condo association has this kind of master policy, you'll probably have a greater need for individual coverage.
• All in. These policies cover fixtures, installations or additions within the interior surfaces of the perimeter walls, floors and ceilings of individual units. Condo owners under an all-in plan will probably have a more limited need for individual coverage.

There are also variations of the two types. These details should be spelled out in a condominium association's bylaws.

2.       What is the Master Insurance deductible?  Condo association insurance typically includes commercial insurance coverage for the commonly shared building and common areas. Such policies typically have an association deductible.   There is an increasing trend to higher condo deductibles.   In the past it might have been only $2,500 to $5,000, but some Associations have increase the deductible up to $25,000 or higher. 

The coverage should be spelled out in the association's bylaws.  However, every owner should request a copy of the association’s insurance agreement at the time of purchase.

3.      How much coverage should an owner purchase?   Once you've determined exactly which parts of your condominium unit you must insure individually, you need to decide how much coverage to buy.  You agent can assist you in this process. 

4.      Should you purchase cash-value or replacement-cost coverage?  Once you determine the appropriate amount of coverage, you'll need to decide what kind of coverage to buy. You need to pick between two basic categories: cash value or replacement cost.  What's the difference?  Cash-value coverage replaces the value of the insured item minus depreciation.  With actual cost-value coverage, there's depreciation based on the age of your contents.  By contrast, a person with replacement-cost coverage would receive a check for what it would cost to replace the item. 

5.      Does your insurance cover contents and structure?   When insuring your condo, make sure you have coverage for contents and structural items.   What's the difference?  The typical guide is that “content” includes everything that would fall out if an owner were to turn their condo upside down.  Everything else that stays is interior “structure”.  Structure would include flooring, wall-to-wall carpeting, lighting fixtures, countertops and cabinetry.  Condominium owners should approach insurance needs from a slightly different perspective compared with owners of single-family homes. Someone who owns a stand-alone single-family home typically looks at the price of replacing the structure (usually a house) first before determining insurance coverage for the possessions inside the structure. Condominium unit owners should take the reverse approach.  These steps would be: 

* the owner should look to see what they have: electronics, furniture, furnishings, rugs, etc.

* determine which structural items inside your four walls you are responsible for insuring.   

* check for gaps between what the condominium association covers and what a personal condo policy covers.

6.      Do you have flood and wind damage coverage?   The U.S. government offers flood insurance to all homeowners. This coverage is often optional but may be mandated by the mortgage holder if the property is in a flood zone. Condo association should discuss the kind of coverage that's appropriate because a flood would generally affect the building's structure and coverage would likely fall under the association's master policy.  It is also worthwhile to consider personal flood insurance as the association policy typically will not cover personal contents or the interior structure. Coverage is generally available through the National Flood Insurance Program, which is run by the federal government.

Notably, there is a difference between flood insurance and water backup coverage.   Water backup coverage isn't federally mandated, but it's a very good idea to have if you're in a space where perhaps the basement has a lot of storage area and there's potential for damage to your personal items if water backs up through your sewers and drains. Sometimes people get this mixed up with flood insurance.

Coverage for windstorms would generally be covered under the standard condominium policy unless there is a specific exclusion attached to the policy.   If windstorm is excluded, the consumer may purchase wind coverage through the state's wind pool association.

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