Buying a condo that’s part of an HOA or condo association means that the homeowner has different responsibilities and rules that apply to their home. This is especially true when it comes to their insurance.
Homeowners insurance and HOA or condo association coverage serve distinct purposes. Lenders require homeowner insurance, but confusion may occur when the homeowners doesn’t understand the distinction between their coverage and the association’s. Unfortunately, without clarification the condo owner could pay if a loss occurs, because they have a gap in their coverage.
What Do Associations Cover?
In most cases, if you own a condo the HOA or condo association owns the building and you own your unit and the property within it. Your HOA fees go towards a master policy which insures common real areas such as stairwells, lobbies, common walls, pools, etc. It also protects homeowners from liability from personal injuries in common areas and sometimes lawsuits from HOA or condo employees. However, it is extremely important you review your condo or HOA documents as many details exist in the fine print.
The Declaration of Covenants, Conditions, and Restrictions (CC&Rs) you signed when you bought your condo clarifies the insuring responsibilities of the HOA or condo association, but rarely specifies yours. Consequently, everything rests on the wording in this legally binding document.
For instance, a common issue is deciding where your unit begins and at what point the association assumes responsibility. Often times, these documents use terms such as “studs in” to delineate responsibilities, but your needs depend on the exacting wording of the CC&Rs document, which varies. Other times, the documents state that the association is responsible for the structure only as it was originally built. Over time, you may not know if your unit had cabinet upgrades, flooring upgrades, updated plumbing fixtures, etc. Review your documents carefully for clarification and when in doubt, discuss your options with your insurance agent.
Once you’ve determined the HOAs insurance obligation, you also need to review their insurance because your protection relies, in part, on the specifics of your association’s master policy. Even though condominium by-laws normally demand associations maintain proper insurance, it doesn’t necessarily mean board members review the coverage regularly.
Without proper coverage limits, condo owners could find themselves paying out-of-pocket for insufficient association coverage. It is in an owner’s interest to closely follow the insurance and financials of their HOA or condo association.
If the association’s coverage is up to snuff, it’s time to get your own insurance! Condo owner’s insurance recognizes most of the dwelling belongs to the association and focuses on protecting the interior and your personal property.
It is a good idea to take an inventory of all items inside your condo, including cabinetry, appliances, and all personal items (contents). “Replacement cost” insurance provides the maximum insurance benefit, but other policies only pay “actual cash value”; replacement cost less depreciation. We typically recommend that people select “Replacement Cost” coverage, as the cost savings isn’t worth the extra risk.
Condo owners can also buy “loss assessment” coverage. This protects you if the HOA or condo association does not provide sufficient coverage so you can avoid unexpected (and often significant) out-of-pocket expenses that get assessed to unit owners.
It is especially important to have sufficient liability insurance. Living in a shared space can mean problems can spread to other units and create larger losses. In some cases, these claims can become liability issues.
Working with a local insurance agent has obvious advantages when you need to buy condo, homeowner’s, or any other kind of insurance. They can review your Declaration of Covenants, Conditions, and Restrictions and by-laws to identify any areas of concern and fill any gaps. If you have any questions about your current coverage, or would like a quote on a new policy, contact us today.