Condo Insurance (HO-6)
Insurance is another area where homes and condos differ. Condo owners are typically responsible for insuring a portion of their property on their own. We’ve found that rules differ from complex to complex, so it’s important to ask the right questions to ensure you have proper insurance coverage.
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5 Things You Need To Know
• What your master policy says – Owners of condominium units do not own the entire complex. Most own their own unit and share ownership of the rest of the complex with all the other owners. This 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.
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. The first thing you should do before you buy that condo is know specifically what you own when you buy it.
The two categories of master policies are:
• 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, according to Slattery.
• 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.
• How much is the association deductible – Condo association insurance typically includes commercial insurance coverage for commonly shared buildings and common areas. These policies typically have an association deductible.
Whatever the natural disaster is, it is usually listed in the policy. If there is major damage to the structure, the condo association will tender the claim to their commercial insurer, and they would get covered for their loss. There is a deductible that would be assessed against all unit owners. It would probably be divided between how many unit owners there were.
The coverage should be spelled out in the association’s bylaws but deductibles have been rising in recent years. Some have seen them as high as $25,000 or more. Be sure you look for that when your shopping.
If the owner does not have a copy of the contract, they may obtain one from the association’s board of directors, its business manager or anyone from the association responsible for addressing individual unit owner questions.
• How much coverage is appropriate – Once you’ve determined exactly which parts of your condominium unit you must insure individually, you need to decide how much coverage you need to purchase.
We suggest estimating coverage by paying attention to how much other owners in the development paid for recent upgrades, such as new flooring, cabinetry and countertops. Another way to get a rough estimate is to find out what half the market value for interior structures are. If there’s a fire, for instance, people have enough to replace their flooring, their cabinetry and their walls — anything else that’s actually considered their personal responsibility. That’s a pretty good way to estimate it.
• Cash-value or replacement-cost coverage – You will need to decide what kind of coverage to buy. Look at two basic categories: cash value or replacement cost.
The difference between the two is thousands of dollars, in most cases. 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. In this case, a person who lost a television would receive a check for the amount that the TV was worth after two or three years of wear and tear. By contrast, a person with replacement-cost coverage would receive a check for what it would cost to replace the old TV with a new one. Depreciation is not used in the replacement-cost model.
Some strongly recommend replacement-cost coverage for your contents, especially in a condominium association based on if you did have a loss, the insurance compensation would replace what it would cost if you were to buy it today.
• Have you insured contents and structure – When insuring your condo, make sure you have coverage for contents and structural items. What’s the difference? Everything that is in your condo that could be moved from one place to the next is content. Everything such as your flooring, carpeting, light fixtures, countertops adn cabinets are structural items.
Condominium owners should approach insurance needs from a different perspective compared with owners of single-family homes. Someone who owns a single-family home usually looks at the price of replacing the structure (usually a house) first before determining insurance coverage for the possessions inside the structure. Condominium owners should take the reverse approach, Condominium coverage is built off your contents. The first thing you should consider is what assets inside your home do you want covered. Next, determine which structural items inside your four walls you are responsible for insuring.