Knowing the Difference Between Homeowners & Condo Insurance is Critical

 

The typical condo owner (especially first timers) may not realize that condo insurance and homeowners insurance are completely different policies.  Whether you have never owned a condo or had previously had homeowner's coverage or have never carried insurance there are a couple of things to know.

First, there are two types of policies.  An HO3 policy is for single family homeowners and townhome owners whereas the HO6 policy is for condo unit owners.

The condominium owners approach insurance needs from a slightly different perspective compared to owners of single-family homes.  An owner of a single-family home needs to determine the price of replacing the structure before determining insurance coverage for the possessions or content inside of the structure itself.

With condos, the community has a master insurance policy that covers most of (but not necessarily all of) the structure.  But there are different types of master insurance policies!

In order to make sure you have proper coverage you must discover the type of the Association Master Policy the building is covered by.  Not doing so could leave you under or over-insured; neither of which is a good situation.

The best way to determine the buildings coverage is to get a copy of the association's insurance first before purchasing condo insurance so that you can identify gaps that will need to be filled by your HO6 policy.

Association Master Policies Two Broad Categories:

Condo owners need to carry homeowners insurance like any other homeowner.  But, because the condominium is also covered by a condo community's master insurance policy for certain elements, your insurance needs are different.

Condo homeowners insurance typically covers loss and the liability involving possessions and people within condo units while insurance master policies cover structurer and other issues.  Condo insurance master policies come in two varieties, "bare walls-in" and "all-in" and it is important for you to understand the difference.

Bare Walls-In Condo Master Policy

This policy does not cover anything contained within the unit's walls (contents).  It may or may not cover your condo's plumbing and electrical systems.  Under a condo community's bare walls-in condo insurance policy, a condo's countertops, kitchen, and bathroom fixtures and flooring and event he pain on the walls probably wouldn't be covered.  Basically, you need to ensure you purchase a greater level of individual homes owners insurance for the condo's interior under bare walls-in condo community insurance policies.

All-in Condo Master Policy

All-in condo insurance mater policies provide a greater level of interior coverage for condominium owners.  All-in condo insurance covers fixtures, installation and additions to the interior surfaces of walls, floors and ceilings.  You'd only need a limited amount of individual homeowners insurance under a condo community's all-in insurance mater policy.

Still, there are many variations that might exist for an individual association.  This is why it is so important to get a copy of the by-laws in order to identify coverage overlaps or even coverage gaps.  Be sure to carefully review the association's mater policy to determine what their condo insurance policy needs to cover.  Also review this information with your insurance agent, they are the best source for helping you to understand these documents.

Association Deductibles

Most master insurance policies have deductibles that are paid as a group by all owners.  If the community's buildings were damage by a storm, the community's condo association would make a claim against the insurance master policy.  The deductible amount is typically spread among all owners.

A condo community insurance master policy with $5,000 deductible and 20 owners would cost each owner $250 per deductible payment ($5,000/2 = $250).  Having this information is important so that you understand all of the costs associated with a loss that affects your unit but also the building itself.

Loss Assessment Coverage

Being a member of a condo association means you are collectively owners of the building's common areas.  this means they could be liable for loss not covered under their association's policy.  You should look into loss assessment coverage which will help pay for any association related incidents, such as:

• Claims that exceed the association's policy limits or if owners are required to contribute to an associations lofty deductible.
• Losses incurred which are not covered under their HOA's policy.

 

Flood Insurance for the Condo Owner

The U.S. government offers flood insurance to all homeowners.  The coverage is often optional and is mandated by the mortgage holder if the property is in a flood zone.  It remains worthwhile to consider personal flood insurance because the association's flood coverage probably won't cover anybody's personal contents or the interior structure.

The association insurance will rebuild the building, but if you're in a flood plain and the mortgage company requires the condominium association to have floor insurance, they're going to require you to bring a certificate of insurance to the closing.

Summary

When it comes to insurance it is always better to be prepared.  The best way to be prepared is to know all of the facts and to have a conversation with your insurance agent, they can help you to make sure that you have all of the proper coverages in place.