What is so tricky about insuring a condo?

March 11, 2021 | Written by Jerry Nicklow

Things to know when insuring a condo

Insuring a condo is simple right?  Well, it may not be as simple as you may thing.

The first thing to understand is that condominiums can take on many shapes and sizes.  Below are photos of 4 types of condo buildings.

 

 

 

 

 

 

 

 

 

 

 

 

So the question arises; How do you insure a condo?

When someone buys a condo, they go to their insurance agent to get what they think is a “standard” condo insurance policy.  They’ll Get $25,000 building coverage, $50,000 contents coverage and $300,000 liability coverage and think that they are OK.  But to let you in on a secret.  When insuring a condo, there is no such thing as a standard condominium insurance policy.

The building coverage limit needs can vary in a wide range depending on the condo association’s master condo policy declarations.

Here are some terms that a condo owner needs to understand in order to get the right condo insurance policy for their unit.

4 real property definitions apply to a condo property:

• • Common Elements: Property owned by and/or benefiting ALL members of the association.  These could be playground equipment, clubhouse, property fencing, etc.
  • Limited Common Elements: Property elements beneficial to more than one, but less than all unit owners.  These could include building stairwells, building laundry rooms, etc.
  • Unit Property: Property elements that benefit none but the unit owner.  These could include unit plumbing fixtures, unit cabinetry, unit light fixtures, etc.
  • Unit Improvements and betterments: These are the alterations or changes to the real property defined as unit property that increases the value of that property within an individual unit.  These would include things that the unit owner added or changed inside of the condo unit.  Examples include: New cabinets and countertops, new light fixtures, new hardwood flooring, etc.

What is the condo unit responsible for when insuring a condo?

Condo Insurance responsibility is defined in one of 3 ways:

1. “All in” or All Inclusive”: When the association specifies this type of coverage, the association is responsible for all 4 types of real property.  The unit owner only has to insure their personal property.  Standard condo insurance policies (HO6) usually has $1,000 automatic building coverage which would be sufficient for All In.
2. “Bare Walls”: This is the opposite of all in.  The association is only responsible for insuring the common elements and limited common elements.  The unit owner is responsible for unit property and any unit betterments and improvements.  The standard building coverage on the HO6 would not be enough for the unit owner.
3. “Original Specifications”: This is the middle ground between the two above.  The association is responsible for the common elements, limited common elements and “original” unit property (what the builder put in at time of construction).  The unit owner is responsible for unit betterments and improvements (upgrades to counters, cabinets, fixtures, etc.) or any additions to the unit (enclosed porch).  Again, the automatic HO6 coverage will not likely be enough for this type.  It is also important to know what the original specifications are for the condo unit.  This can be tricky if the condo has been sold one or more times over the years.  But this information should be available from the condo association or property managers.

Items to think about for condo insurance

• • The standard HO6 condo insurance is a named peril insurance policy.  This means that only the perils (causes of loss) listed in the policy will be covered should there be a loss on the condo.
  • There is a broadening endorsement available when insuring a condo on an HO6 insurance policy.  This endorsement will change the policy from a named peril policy, to an open peril policy.  This means that all perils are covered UNLESS they are specifically excluded on the policy.  Huff Insurance recommends this broadening endorsement for all of our HO6 insurance policies.
  • Is the building coverage on the condo insurance (coverage A)  enough?  We find the answer is no when we review most competitor’s policies.  Most have $10K, $25K or $50K in coverage a because that is what considered industry standard.   With walls in or original specifications as defined above, these building  limits can be exhausted quickly.
  • If the bylaws or declarations do not specify the coverage responsibility above, state laws dictate the responsibilities.

Things the insurance agent needs know to properly insure a condo:

1. What is the coverage responsibility per the association bylaws or declarations?
2. What is the replacement cost for each structural item that the unit owner is responsible for? – If the responsibility is original specifications, make sure the unit owner has a copy of the original specifications so they can identify any betterments and improvements that they need to insure.  This gets tougher as the condo get sold multiple times.
3. How much personal property does the unit owner going to have?
4. What is the loss assessment limits set in the master policy or by laws?

Things the condo unit owner needs to understand, besides previous agent items:

• • Regardless of what you may hear, there is no “standard” condo insurance policy (HO6).   Cookie cutter policies with pre set limits should not exist.
  • Some lenders may not require an HO6 as a condition of the loan.  Especially if the master policy is an “All In” form.  But that does not mean that the unit owner does not “Need” an HO6.  There are other very important insurance coverages – like liability insurance , personal property insurance, loss of use insurance, etc.
  • If the unit owner is renting out the condo, they still may be able to get an HO6 with a rented to others endorsement.  Which is different than other homeowners products where they would need to get a dwelling fire insurance policy.
  • Short term rentals may be ineligible for certain companies.  For example, weekly vacation rentals, VRBO, or Airbnb.  So if the use changes from owner occupied or long term rental to short term rental, the unit owner needs to talk to their insurance agent.

Insuring a condo is not as easy as some people think.  So you need to have an insurance professional on your side to make sure that you are properly covered.  Unless there is a claim, most unit owners do not know that they are improperly covered.  Finding out after a claim is not how someone wants to find out that they are vastly under insured.

Call Huff Insurance at 410-647-1111 to talk about your condo insurance needs.