It is painful for us when we represent a condo association and observe that so many unit owners have limited or no insurance on their units. A master policy purchased by your condo association covers the building, the common areas and the unit owners’ collective liability. However, the master policy does not cover everything of importance, such as your personal property and the cost to live elsewhere while repairs are being made.
One example we experienced recently was that of a six-unit condominium building that suffered a catastrophic fire that required over a year to rebuild. Only one unit owner had a policy that provided adequate coverage for his contents, his responsibility for the building portion of the unit, and for the family to live in an apartment for that year. Two had limited policies that covered only a portion of their personal property and a limited rental value. Three had no insurance and, as a result, lost a great deal of money.
I recently discussed this situation with the principal of a large property management firm. He identified this issue as one of his major concerns as a property manager. With this in mind, I suggest this as the first step you should take: Bring the association’s current master insurance policy, along with your condo documents (by-laws), to your insurance agent to make sure that you obtain the proper coverage.
Here are several of the typical issues you will have to deal with:
• Is your insurance agent familiar with condo insurance so that he or she understands how to give you the proper policy? You might consider getting your insurance from the agent who wrote the association policy to ensure there are no loopholes in your coverage.
• Many condo associations have had to reduce insurance premiums by raising the master policy’s deductible and/or reducing coverage. Do you have enough unit owner’s insurance to cover your portion of the master policy’s deductible? For example, one condo building suffered a series of extensive pipe breaks. The association was forced to obtain a policy with a $20,000 deductible for water damage to each unit! They had to deal with a $180,000 deductible the last time they had a loss. That deductible was passed on to each of the affected unit owners. Their insurance policies covered the deductibles. Unfortunately, one of the unit owners did not have insurance and had to pay for the repairs out of pocket.
• Does your association policy cover everything in your unit except for contents? Most association policies in New England cover the entire building. In Florida, however, most association policies cover only the common areas and the unit owner has to cover his individual unit.
• Do you need to cover the improvements to the unit that have been made since it was originally built? After a loss, it can be a major challenge to determine the original construction of the unit. (Many condo by-laws require a unit owner to notify the association of improvements so that they can be covered by insurance. Don’t forget to do this.)
• Do you have enough insurance to cover all of your contents? You should check your limits every year at renewal to make sure it covers the new furniture you just purchased, along with the new stereo system and big screen TVs. You should consider obtaining replacement cost coverage for your contents; standard coverage typically pays only the depreciated values of destroyed contents.
• Do you have enough insurance to enable you to live in an apartment while your building is being rebuilt, which can take a year or longer?
• The basic unit owner’s policy only covers a limited number of perils. Discuss with your agent the benefits of an “all risk” policy that covers most perils. For example, an association’s policy and the standard unit owner’s policy may not cover wind-driven rain. We represented a unit owner’s policy that had an “all risk” form added to his policy. He collected for extensive water damage to his unit after a major rainstorm while the other unit owners did not.
• Discuss raising the standard $1,000 limit for assessment coverage with your agent. Assessment coverage is for your portion of a loss to the common areas. Note that your unit policy has to cover the loss. This is not a problem with a fire loss, which all policies cover. But if there is an unusual loss that your policy does not cover, you’ll wish you had that “all risk” form previously mentioned. Here is one little known, but important, fact: you can increase the amount of the assessment coverage after the loss occurs. If you do it before the assessment is made, you may be covered.
• A major benefit of a unit owner’s policy is personal liability coverage in the event of a lawsuit. Discuss this with your agent.
Your condo unit is your home and you need to insure it in the same way. Please don’t become a unit owner who is literally out in the cold because of a lack of preparation.