The differences between condo ownership as opposed to single detached home ownership are obvious. For one, there are HOA fees that condo owners need to pay that aren’t applicable to most single detached properties. Part-ownership of common elements is another unique feature of owning a condo unit.
But condo insurance is yet another aspect that differs from that of freehold properties. While both types of properties require insurance, condo needs are different. This is because condos are covered by the community’s master insurance policy for specific elements, as well as individual condo homeowner insurance.
But what’s covered under one policy isn’t necessarily covered under another.
Here are 4 things you should know about your HOA’s master insurance policy so you understand exactly how you and your belongings are protected.
1. Two Types of Master Insurance Policies Exist
Your HOA’s insurance policy falls under two broad categories: “all-in” and “bare walls-in.”
All-in – A lot more is covered through “all-in” insurance policies compared to bare walls-in coverage for condo owners. For example, if the walls in your condo are damaged by fire, your HOA community’s all-in insurance policy would cover many interior elements, such as fixtures, improvements and additions to the interior surfaces of the walls, ceilings, and floors. Under an all-in insurance master policy, you’d really only need limited coverage with individual homeowners insurance.
Bare walls-in – This type of condo insurance master policy covers all of the condo property from the exterior framing inward. But it doesn’t offer the individual unit owners as much coverage as an all-in master policy. Any damage to walls, floors and ceiling in individual units couldn’t be covered in the event of a fire, for example. Essentially, you’d require more coverage under your individual homeowners insurance policy in order to make sure your unit’s interior surfaces are covered.
Variations of both types of master policies exist, which should be detailed in the condominium association bylaws.
2. Your Individual Policy’s Coverage Will Depend on the Master Policy in Your Condo
Anything that exists within the confines of your individual unit is your responsibility. But depending on what type of master policy your HOA has in place, you may want to carefully consider the type of coverage that you get (and pay for).
The type of coverage you opt for can vary. But generally speaking, the following coverage options are available to offer protection on certain things that your HOA insurance might not:
Personal items – If any of your belongings are damaged or stolen, condo insurance can cover the replacement cost value (less depreciation).
Interior structure – Did you know that the actual flooring, drywall and fixtures are yours? As such, they’re your responsibility to protect under insurance if your HOA’s bare-walls in policy won’t.
Liability – If you have guests over and they’re injured during their visit, condo insurance may help cover the expenses if you’re deemed responsible.
Loss assessment – If your condo association determines that you’re responsible for any losses to the HOA – such as damage to one of the common elements – loss assessment coverage can protect you financially.
Loss of use – If your unit is damaged to the point that it becomes uninhabitable, your individual condo insurance policy may cover the costs associated with rental expenses while your place is repaired and brought back up to par.
Identity theft – This is becoming a huge problem in the US. If your unit has been broken into and personal documents such as passports, credit cards and driver’s licenses are stolen, identity thieves can have a field day. This coverage comes with a minimal cost, but can be extremely helpful.
3. Should You Opt For Cash-value or Replacement-Cost Coverage?
After you’ve determined the right amount of coverage, you’ll need to choose your coverage based on two basic categories: cash value and replacement cost. The difference between the two could mean hundreds if not thousands of dollars, which is why it’s critical to choose wisely.
Cash-value coverage – Only the value of the insured item less depreciation will be replaced with the cash-value option. Any item you buy will immediately start to lose its value the moment you walk out of the store. A 5-year-old television isn’t going to be worth as much as it did when it was first purchased, for instance. The insurance company would need to check out what that same (or similar) television could cost today, then deduct any depreciation.
Replacement-cost coverage – Unlike cash-value coverage, depreciation isn’t used to calculate how much you’d get back after the loss of your contents, such as a television. Instead, you would receive a check for the amount what it would cost to replace your old television with a new one on the market today.
4. Association Insurance Policy Deductibles Are Paid By All Owners
Much like your own personal insurance policy requires a deductible to be paid should you file a claim, your HOA’s master policy requires the same. But the amount of this deductible can vary greatly, and is ultimately paid for as a group by all condo owners in the building.
Whether the condo community’s building was damaged by fire, wind, or natural disaster, the association would file a claim against the master insurance policy. The deductible amount would be spread out among all condo owners to be paid. So, if there are 50 unit owners in a building, and the master policy comes attached with a $5,000 deductible, each owner would be responsible to pay $100 towards this cost.
You need insurance for your condo, much like you would for any other type of real estate. But because of its unique traits, the type of individual coverage you get for a condo requires some careful consideration. Take the time to understand your particular HOA’s policy and coverage to make sure the policy you buy offers adequate coverage.