Do you own a condominium? To you, condo ownership may
represent a feasible way to home ownership. Or maybe it represents a second
residence in some exotic location you like to visit. Or maybe it’s an
investment to generate rental income. Regardless of why you own, understand
that insuring a condo is much different than insuring a traditional home.
Statutes and Paperwork
A thorough review of your master deed (often called declarations
or “docs”) is necessary to adequately insure your condo. Unfortunately, these
docs can be multiple pages of legalese that make it difficult to decipher
insurance requirements. Further, your association’s bylaws may contain
important insurance information. And if it wasn’t confusing enough already,
some states have statutes which dictate condo insurance requirements. For these reasons, a best practice is to
review your insurance needs with a trusted insurance advisor, like your Trusted
Choice® independent agent.
Definition of Unit
Your docs should contain a definition of “unit.” This term is
often used to define the boundaries of the property that you individually own
vs. common property that is owned by
the association or other entity. For example, boundaries may include the space
you occupy as well as all real property located between the unfinished walls,
floor and ceiling. Note that there is no standard definition of unit: All docs are different.
“Bare Walls In?” or “What I Bring In?”
Some docs will make the association’s insurance policy
(often called “master” policy) responsible for all building items and fixtures
including those located inside your unit. Such items may include floor
coverings, kitchen and bathroom fixtures, built-in cabinets and counters,
appliances and equipment. In this case, you are only responsible for insuring
your personal property such as furniture, electronics, and clothing. You may
also be responsible for insuring alterations you make to the existing floor
plan, such as laying carpet over tile.
Other docs will make the master policy responsible only for real property that is located
outside of the unit. In this case, you are responsible for insuring the items
mentioned above including building
items and fixtures located inside your unit. Some docs will specifically list the
items that you must insure yourself, but others are not as clear. This is
another important reason to review the docs with your independent agent.
If you plan to use your condo to make a few extra bucks, proceed
with caution: Once you rent or make your condo available for rental, your
insurance changes. For example, once your condo is made available for rent you
lose coverage for your personal property. This means items like furniture,
electronics and decorations are no longer insured. Since condos often are
rented furnished, this is a large gap that must be addressed before the damage
happens. Coverage is also eliminated for appurtenant structures—such as a
detached garage or dock—if damaged once the condo is rented or made available
This practice also eliminates the personal liability
coverage under your condo insurance policy. This means if someone renting your
condo injures someone else or their property and you are brought into the
lawsuit your condo policy will not pay to defend you.
All hope is not lost. Most condo policies can be easily
amended to close these significant coverage gaps. Your Trusted Choice®
independent agent can also help you evaluate how much your policy will pay you
for lost rental income if your condo is damaged.
There are many reasons why your association may render an
assessment against you. There are circumstances where your condo insurance
policy will help pay the cost of the assessment. One circumstance is if you are
assessed to pay costs for which the association is liable due to a loss that
would be covered by your condo policy.
For example, say you are assessed for dollars to repair
damage to common property (i.e. a pool house). The reason you were assessed is
because the damage exceeded the amount of insurance available in the master
policy. If the damage was caused by windstorm, the assessment coverage under
your condo policy would kick in because windstorm is covered by your policy.
However, if the cause of the damage was flood your policy would not pay because
flood is not covered by your policy.
Your assessment coverage will also kick in to help cover the
cost of the master policy’s deductible. It may also pay for liability
assessments resulting from claims of bodily injury or property damage as well
as liability for your decisions as an uncompensated association director or
The dollar amounts of such assessments are unpredictable and
depend on factors that are out of your control. This is why you should work
with your trusted advisor to raise the amount of coverage your policy will pay
for an assessment.
Properly insuring your condo is complicated. A professional
independent agent can help you secure the insurance you need to eliminate
surprises if the worst happens.
TLIG is a local Trusted Choice®
agency that represents multiple insurance companies, so it offers you a variety
of personal and business coverage choices and can customize an insurance plan
to meet your specialized needs.
Visit us online at www.tligins.com
or call us at (434) 582-1444.