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The Important Parts of Condo Insurance

Insurance on a condominium is generally cheaper than a single-family home.  This is typically because your homeowners association has their own insurance policy that takes on ownership of repairs for the building (I call this the master insurance policy).  I wish that insurance on your coverage was simple and that I could just end the conversation here, but there are some important factors to be aware of.

People think that the master insurance policy covers the building, but that may or may not be the case.  Each master insurance policy can be written differently as to where the cover extends to owned units.  Common coverage terminally may be walls-out, bare walls, and walls-in.

  • Bare walls or walls-out coverage basically means that the studs will be built for the structure.  The owner of the unit is responsible for replacing everything else - drywall that goes on the studs, all flooring materials, and then everything else in the home.
  • An all-in coverage is what it says and covers everything that would need to be replaced to the dwelling, including cabinets, sinks, counter tops – basically everything that is not ‘your stuff’ in the condo.
  • A third coverage option would be something in between barre wall & all-in.
  • Almost all policies cover how the unit was originally built and would not include coverage for upgrades made by the unit owner(s).

Remember that insurance policies have multiple buckets on the policy for goods.  Dwelling or structure is one bucket, the second bucket is any other structures on the property, and then your personal property is the third.  It can be a little bit confusing on what is considered part of the dwelling vs your personal property.  A general way to distinguish between the 2 is: if it is fixed to the structure it is likely covered under dwelling coverage and everything else would be considered personal belongings.  So, your kitchen cabinets are the dwelling, but the appliances are property.

To find out what your HOA’s master insurance policy covers you need to review your bylaws, declarations and/or the actual insurance policy itself.  One or both of these documents will likely tell you what the master policy covers so that you can determine what coverage you need on your unit owner’s insurance policy.

If you do not know if you have the right coverage, you can contact your insurance agent and they can explain to you what coverage you need.  A quick reference you can do is to look at your policy and see how much coverage you have for ‘Coverage A’ or ‘Dwelling’.  If that amount is $0 or a much lower number than you think it would cost to rebuild your condo, please validate that the HOA master insurance policy includes all-in coverage for the building.

When you own a condo, loss assessment should be included on your policy.  Loss assessment coverage will pay when a covered peril causes damage to buildings owned by the HOA, but the HOA does not have the money to pay for them.  Here is a scenario of when loss assessment coverage can help:

There is a lot of hail damage in Colorado and it has become a major expense to insurance companies.   One way insurance companies have tried to reduce how much they pay for hail damage is by including higher deductibles.  It is common for master insurance policies to have a 2-5% deductible of the Coverage A amount.  If you live in a big complex, Coverage A could be $50-$100M.  A 5% deductible on a $100M policy means the HOA has to pay $5M out of pocket for any hail claims.  When this happens most HOA’s need to ask the unit owners to pay the $5M deductible, which is called an assessment.  Your portion of that $5M could be $10,000 or more.  Loss assessment coverage will pay the $10,000 less your deductible so that you do not have to pay out of pocket.

When you read your bylaws, it will likely say that loss assessment coverage is required on your insurance policy to try and avoid situations where unit owners are unable to pay the loss assessment.  Be aware that loss assessment coverage will only pay when the assessment is due to a covered peril, like hail, and does not cover in situations where say wear and tear on the buildings has resulted in repairs.

Another thing to be aware of is what perils a condo policy will cover for.  While this isn’t a major concern in my eyes, it is something to look out for.  Most condo policies only cover the building for a list of named perils.  There are quite a few listed perils and include wind/hail and fire.  That compares to a single-family home that is covered by all perils unless it is specifically excluded.  So, there is a clear difference in what is covered, but the perils that are the most common are included in both types of policies.  You do have the option of increasing the coverage on the condo policy to be all perils coverage if you are less risk tolerant.

As an insurance agent I want to make sure you are covered when you need to be.  Understanding what you need to insure vs the HOA’s master insurance policy and having loss assessment coverage are the two things to be the most aware of when searching for condo insurance. 

Townhome’s master insurance would want to be reviewed as well.  Not all townhome HOA’s cover walls-out, which may mean you could save some money on your insurance.

To your financial success,

Brad Christian