Insuring a condominium unit can be more complicated than insuring a single-family home. Owning a condominium involves two policies: your own condo insurance policy and a “master policy”.
Your own insurance policy provides coverage for your personal possessions, structural improvements to your condo and additional living expenses if you are the victim of fire, theft or another disaster listed in your policy. Your own condo insurance policy also provides you with liability protection.
Condominium insurance--also referred to as an HO-6 policy--differs from typical homeowner's insurance. Most condo associations tackle the responsibility for insuring exterior building walls and common areas in the complex, as well as insuring for property damage and liability protection for accidents occurring in shared areas such as stairwells or walkways. Typical condominium insurance covers your personal property, offers personal liability protection and covers most of the interior structures of the home.
To make sure that you have adequate insurance coverage for your condo, you should ask the following five questions.
1. What does the master policy cover?
Your master policy should explicitly say what areas of the complex are and are not insured by association dues. Don’t jump to conclusions as to which is your responsibility and what is the responsibility of the condo owner's association. In order to make sure you’re not either under or over insured, determine exactly what is covered by your policy – this way you are only insuring those things that actually need to be covered.
Sometimes the association is responsible for insuring the individual condo or co-op units, as they were originally built. If there have been any alterations, you are responsible for insuring those. For example: if you or a previous owner remodeled the kitchen or bathroom that would be covered by your individual policy, not the one your association maintains.
Other times, the association is responsible only for insuring the bare walls, floor and ceiling. So you have to insure things like kitchen cabinets, built-in appliances, plumbing, wiring, bathroom fixtures, etc.
2 How much is the condo association deductible?
Your condo association will usually have commercial insurance coverage for shared building and common areas. These policies come with an association deductible. Thus, if a disaster struck your complex, this deductible would be split among the unit owners. This is not a major concern if the deductible is only $5,000, but some deductibles can range up to $50,000. Also, if the association does not have enough coverage and assesses each unit owner for the deficiency, you want to be sure you have loss assessment coverage which would provide coverage for your portion of the assessment in the event of a covered claim.
3. How much coverage is needed?
After you know what parts of your condo you must insure on your own, you need to decide on how much coverage is appropriate. To estimate the coverage you need, pay attention to how much other unit owners are paying for recent upgrades, such as new cabinets, flooring, or countertops.
4. Cash value vs. replacement cost coverage?
The difference between these two coverages is massive in some cases. Cash value coverage reimburses you only for the present cash value of the item less depreciation. Replacement cost coverage reimburses you for what it would cost to replace the item with a new model. For instance, if you lost a TV that was three years old, cash value coverage would only give you what the TV is worth today, which might be next to nothing. Replacement cost coverage would pay for you to buy a new model.
5. Did you insure interior structure and contents?
When getting condo insurance, you need to get coverage for both your personal belongings and the actual structure of the building. Remember that you only have to insure the structural items for which your condo association's master policy holds you responsible.
And don't forget, your condo policy doesn't insurance flood insurance. It your lender requires flood insurance for your loan, let us review the options with you.
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