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Insurance & Risk Management: How to Properly Insure Your Residential Condo Unit if you Own One or are Interested in Purchasing

How to Properly Insure Your Residential Condo Unit

Insuring a residential condominium (condo) unit can be complicated. If you own a condo and sustain damage, there are two insurance policies that will respond: your own condo unit owner’s policy, and the association master policy.

The association master policy usually covers the exterior condo building, common property on the grounds, and liability for the association. The unit owner’s policy usually covers personal belongings and personal liability. The area that causes the most confusion is the insurance for the interior structure of a unit.

The detailed insurance responsibilities for the interior unit are set forth in the condo laws or declarations. Insurance responsibilities can vary by state law and by each condo association contract. Similar to pieces of a puzzle, it is important that the unit owner’s policy and the master policy fit together to provide adequate coverage in the event of a claim.

If a pipe bursts in a wall and hardwood floors and kitchen cabinets are ruined as a result, do you know who is responsible? Is it the association? Is it you? If it is you, do you have enough coverage?

Condo unit owner insurance, known as an HO-6 policy, can be customized to include coverage to dovetail with the association policy. To properly select coverage options in the HO-6 policy, a unit owner first needs to know what coverage is provided by the association.

Step 1: Learn how the and declarations address insurance requirements.

There are two extremes when it comes to how an association master policy can be structured:

  • “All-in” condo master policy: covers the interior walls, fixtures, wiring, plumbing, cabinetry, and wall and floor coverings
  • “Bare walls-in” condo master policy: does not cover interior walls, plumbing, electrical. All interior items are the unit owner’s responsibility.

A common median approach is that the association covers the interior structure of the unit based on the original specifications. Any improvements or alterations made by the unit owner are the unit owner’s responsibility to insure. There are many variations and each condo association can differ. For this reason, it is important to clearly understand the insurance requirements.

For example, Florida law sets forth specific insurance requirements for condo associations.

Florida Statute Title XL, Chapter 718.111(11)

(f) Every property insurance policy issued or renewed on
or after January 1, 2009, for the purpose of
protecting the condominium must provide primary coverage for:

  1. All portions of the condominium property as originally installed or replacement of like kind and quality, in accordance with the original plans and specifications.
  2. All alterations or additions made to the condominium property or association property pursuant to s. 718.113(2).
  3. The coverage must exclude all personal property within the unit or limited common elements, and floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, water filters, built-in cabinets and countertops, and window treatments, including curtains, drapes, blinds, hardware, and similar window treatment components, or replacements of any of the foregoing which are located within the boundaries of the unit and serve only such unit. Such property and any insurance thereupon is the responsibility of the unit owner.

A condo association’s declarations and s should contain a section with language that similarly states each party’s responsibilities.

Step 2: Determine the association master policy deductible.

The association master policy will include a deductible. The trend recently has been for associations to carry high deductibles to keep insurance costs down. Deductibles of $10,000 or $20,000 are not uncommon. Your HO-6 policy should provide enough coverage to pay a loss that falls under the master policy deductible. Your HO-6 policy should also include loss assessment coverage that pays for assessments made by the association to recoup the deductible. Loss assessment coverage can also pay when the association assesses unit owners if the master policy limits are exhausted due to a large claim.

Step 3: Establish an estimated replacement cost for your unit including fixtures, additions, and alterations.

Once you have figured out what portion of the interior structure is your responsibility to insure, you will need to estimate its replacement cost. For example, if a fire destroys your unit, how much would it cost to replace the custom kitchen cabinetry, the countertops, the lighting fixtures, the floor coverings, etc.? A contractor may be a good resource for getting an estimate. Your coverage should be set high enough to provide a cushion in the event a widespread catastrophic event drives the cost of construction upwards.

Step 4: Establish an estimated replacement cost for your personal belongings.

You will need to consider the cost of replacing all your personal belongings with new items of similar quality. This will include your furniture, clothing, cookware, electronics, etc. You may want to tackle this estimate room-by-room. You should separately establish the replacement cost of any valuable items such as jewelry, art, or collections, as these items are usually insured with a valuable items endorsement.

Step 5: Add optional coverage that broadens the basic HO-6 policy

  • Special Perils Coverage: broadens the policy to provide coverage against all risks of loss unless they are specifically excluded
  • Loss Assessment Coverage: provides coverage for assessments made by the condo association as a result of the master policy deductible or because the master policy limits have been exhausted. Not all types of assessments are covered; the assessment must be due to a covered loss.
  • Replacement Coverage for Personal Property: provides coverage for your personal belongings on a replacement cost basis, without a deduction for depreciation
  • Valuable Items Coverage: provides itemized coverage for valuable jewelry, art, collections, which are typically limited under the basic policy
  • Water Backup of Sewers or Drains: provides coverage for damage caused by water that backs up into the unit through the sewers or drains
  • Flood/Earthquake/Wind: coverage can be added in geographic locations that are susceptible to loss from these perils

It may take a bit of planning and research, but armed with the proper knowledge, you can arrange a condo policy that is right for you and enjoy peace of mind knowing that your investment is properly protected.

If we can be of assistance with any of your personal insurance needs, please contact Nancy Albanese, Vice President, Personal Insurance Division, at 610.527.1881.

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