What is Covered by Your Condo Association's Insurance Policy?
From: Brett C. Meade, Ezine Articles
Aside from the obvious differences between homes and condominiums, there is one crucial difference to keep in mind: the type of insurance coverage you will need. While homeowners need to purchase insurance on all of their property, condo owners are generally responsible for covering only a part of their property. It is important to know what sort of insurance you're going to need, depending on what your condo association requires. You don't want to end up spending more than you need to by covering things that your association already covers, or not buy enough insurance to cover things that your association doesn't cover.
A condo association is very similar to a homeowner's association. Both monitor and maintain common areas, like the neighborhood, or the complex in a condominium's case. Both also collect monthly or annual fees in order to pay for the maintenance. The main difference between the two is that condo associations also use some of the money collected from owners to pay for insurance for the common areas, the condominium building itself and the association's liability insurance. The theory is that all condo owners are collectively responsible to insure the areas that are shared among them. Typically, condo owners are responsible for insuring their own unit, and the condo association will take care of everything (via dues) beyond that. You can find out exactly what is covered and what is not by looking at your condo association's master policy. Even though your condo association may cover a lot, savvy owners still have individual unit insurance as well. This will protect you if your condo is burglarized, if there's interior water damage, or if someone is injured inside your unit.
Some policies cover the entire unit, from the exterior walls in, including interior fixtures such as floors, countertops, sinks, etc. Other types of policies may cover less than that; it is not uncommon for a condo policy to cover the building itself (walls, floors, ceilings), but not interiors such as countertops, cabinetry, sinks, etc. Condo owners whose associations have less coverage for individual units are in greater need of individual insurance for their unit. While homeowners usually start by insuring their property and the exteriors, condo owners should do the exact opposite. The latter should assess interiors (furnishings, electronics, etc.), then calculate in what part of the structure they are responsible for individually.
After you decide exactly what needs to be covered within your condo, you have a couple of options as to what type of insurance to get. You have to decide between replacement cost or cash value coverage. In cash value coverage, depreciation is calculated in, while in replacement cost coverage, it is not. For example, say you had to replace a 5-year-old laptop. In cash value coverage, your insurance company would look at how much you originally paid for the laptop, calculate in 5 years of depreciation and send you a check for what that laptop was worth today. In replacement cost coverage, the insurance company would pay you for what it would cost to replace the laptop today. Just like in any other insurance situation, you must weigh the risks to decide just how much insurance you want to buy. Replacement cost insurance generally costs more than cash value coverage, but could end up saving you money should you need to replace something.
As far as association coverage goes, another important aspect to keep in mind is the deductible. In most cases, the association's insurance will not cover all of the damages, leaving a deductible for condo owners to pay. This deductible is split among the condo owners, so its good to know how much the association's insurance will cover; the left over is up to the owners. Another key element that should be covered in the master policy is what happens if other condo owners do not have adequate coverage? Say one owner cannot pay their portion of the deductible. Is their liability passed along to other owners? This should be outlined in the policy, and if it's not, ask!!
Though it may seem like a lot of work now to investigate and understand your condo association's insurance coverage, it is well worth it. The best way to protect yourself and your money is to make sure you know exactly what you'll have to pay for or are responsible for in specific situations. By understanding this, you'll be able to not spend more than necessary by covering things already insured by your association.