Condo Insurance with Cothran Insurance
If you own a condo, what you are supposed to insure and what the association is responsible for insuring can be a complex and confusing matter. Fortunately, we at Cothran Insurance are experts in this area as we insure both condo unit owners as well as the associations. We understand with great detail the complexities of both sides as well as how both insurances work together, leaving no gaps in between.
What Does Condo Insurance Cover
In short, condominium insurance, also known as an HO6 insurance policy, covers the interior of your unit, your personal property, loss assessments, medical payments, your personal liability and additional living expenses.
Dwelling – The dwelling section of your condo insurance policy covers items of real property which pertain exclusively to you and is your responsibility to insure per the property owners agreement. It also covers additions, betterments and improvements made to the unit, appliances, fixtures and any structures owned solely by you other than the unit itself. The damage to the property must be from a covered peril such as wind damage, vandalism, fire damage or water damage from a pipe bursting. The policy is very comprehensive in the perils it provides for but there are exclusions to every policy.
Personal Property – Personal property coverage covers your personal belongings such as furniture, clothes, electronics etc. There are special limits for theft of jewelry, watches, furs and guns so if you need higher limits than what the policy provides then you need to either increase these limits or list these items individually on an Inland Marine policy.
Loss Assessment – Loss Assessment Coverage pays your share of any assessment made to all condo owners by the property owners association as a result of direct loss to property which is owned by all members collectively. For instance, if there is a clubhouse that sustains damage and the clubhouse was not insured adequately so the association assesses everyone to complete the repairs.
Medical Payments – Pays for medical bills and funeral expenses necessary after an accident causing bodily injury to someone other than you or a regular resident of your household if the accident is incurred as a result of being on your premises or caused by activities of you or an animal owned by or in your care.
Personal Liability – This provides liability protection for occurrences where you are found to be legally liable for the bodily injury to others or property damage to someone else’s property.
Additional Living Expenses – This pays temporary living expenses, such as hotels and additional cost for meals to eat out since you can’t make meals in your home, after damage is sustained to your condo unit if the unit is not livable while the repairs are being made.
It is important to note that each one of the above coverages have their own coverage limit that losses are subject to and that they may be raised if greater protection is needed.
What Part of The "Interior of the Unit" Does A Unit Owner Insure
Where the confusion comes in is what constitutes the “interior of your unit”? How do you know exactly what portions of your unit you are responsible for insuring to protect your condo and what does the Master Association’s policy cover?
What you are responsible for insuring is determined by the Association’s documents. Typically there is a section in the by-laws of the Master Association titled “Insurance” although I have seen it once in the Covenants. It is in that “Insurance” section that you will find the answer to your question. The Master Association is always responsible for insuring the common areas, but this section will detail what exactly the condo unit owners need to insure to protect their condo unit.
There are 3 ways that Condo Associations require condo unit owners to insure their units, Bare Walls Coverage, Single Entity Coverage and All Inclusive Coverage. These 3 approaches are explained below.
It is up to the individual association to decide how they want the individual unit owners to be responsible for insuring their units as there is no one required, right or wrong way to do this. However, regardless of which way chosen, it is entirely up to the association itself and is dictated by what is written in their documents.
It’s important to note that your by-laws most certainly will not reference the actual name of any of the 3 types below. Instead, what you have to do is read the insurance section and determine based on how it is worded, what you are responsible for insuring. Or a simpler way would be to call us and let us make that determination since we do this day in and day out.
- Bare Wall Coverage - Under Bare Walls coverage, you the unit owner are responsible for insuring the building property that you own and exclusively use for yourself such as cabinets, appliances, flooring, wallpaper, paint etc. You are also responsible for insuring any betterments and improvements made to your unit as well as your personal belongings.
- Single Entity Coverage - Under a Single Entity approach, you the unit owner are responsible for insuring just the betterments and improvements made to your unit, any additions to the unit and your personal property.
- All Inclusive Coverage - Under the last approach, All Inclusive, you the unit owner are responsible for insuring only your personal property. The Condo Unit Owners Association would insure the building including cabinets, appliances, flooring, wallpaper, paint and betterments and improvements.
When I say above that you are responsible for insuring the betterments and improvements, what I mean is you are responsible for insuring the difference in cost between what was originally there and what you put in the condo unit. So, if you originally had builders grade carpet and you replaced it with builder’s grade carpet, there is no difference in cost for you to insure. If, however, you replaced builder’s grade carpet with hardwood flooring, you are responsible for insuring the difference in replacement cost between builder’s grade carpet and the hardwood flooring, not the entire cost of the hardwood flooring.
Once you have determined what portion of the unit you are required to insure, we can determine how much coverage you need on the interior of your unit by completing a Replacement Cost Guide. This will eliminate any guesswork so that you can rest easy knowing you are properly insured.
How Do They Know What Was a Betterment or Improvement?
In the event of a covered claim, the adjuster will go out and inspect the damage to assess how much it would cost to repair the damaged property. While out there, to determine what is a “betterment and improvement” and what is not, they will have to rely on original plans for the condo if they are available, speak with you the unit owner as well as possibly even look at other units to see what, if anything, has been upgraded and what the standard installation was.
What Condo Insurance Coverages Do I Absolutely Need?
Regardless of whether your association uses the Bare Walls, Single Entity or All Inclusive approach, there are two coverages with minimum limit requirements that you absolutely must have on your Condo Insurance policy.
If your Condo Unit Owners Association uses the Bare Walls approach, you will most certainly already meet the minimum limit requirements for one of the coverages. However, the other coverage most likely still needs to be increased.
If your Condo Unit Owners Association uses the Single Entity or All Inclusive approach, you may need to increase both limits on your HO6 insurance policy.
The reason why these two coverages are so important is that most Condo Unit Owners Associations require that the unit owner pays for the Master Association deductible if there is a loss to their unit. And most Condo Unit Owners Associations have a $5,000, $10,000 or greater property insurance deductible. So if you sustain damage to your condo unit and you don’t have adequate limits for both of these coverages, you very well may end up having to pay a $10,000 or greater deductible out of pocket.
These two coverages are Dwelling coverage and Loss Assessment coverage.
As I stated earlier, Dwelling coverage covers real property, meaning the cabinets, flooring etc as well as any betterments and improvements. If your condo association uses the Bare Walls approach and you are already insuring the cabinets, flooring etc, then your Dwelling coverage limit most likely is already adequate to offset the Master Association deductible.
However, if your Condo Unit Owners Association uses the Single Entity or All Inclusive approach, you may not included a Dwelling coverage limit high enough to offset the Master Association policy deductible and therefore you would need to increase that limit.
The limit you choose for the Dwelling coverage limit should be as follows depending on the approach that your Condo Unit Owners Association uses:
Bare Walls – Your Dwelling coverage limit should be equal to the full replacement cost of the building property that is for your use exclusively such as the cabinets, appliances, flooring, wallpaper etc.
Single Entity – Your Dwelling coverage limit should be equal to the betterments and improvements made to your unit (remember that we are only talking the difference in cost between your upgrade and the originally installed items such as the difference in cost between going from builder’s grade carpet and hardwood or difference in cost for going from a standard stove to a custom stove) PLUS whatever the Master Association property deductible is. To illustrate, if your betterments and improvements totals $15,000 and your Condo Association has a $10,000 you should have at least a Dwelling coverage limit of $25,000.
All Inclusive – Your Dwelling coverage limit should be at least equal to the Master Association property deductible.
Then, regardless of whether your Condo Association uses the Bare Walls, Single Entity or All Inclusive approach, you should make sure that your Loss Assessment coverage limit is at a minimum equal to the Master Association property deductible.
The reasoning behind requiring both of these limits to be as I suggest is a rather lengthy explanation. However, the short version is that your condo insurance policy can offset the Master Association property deductible if the damages sustained were to your unit.
What that means is that if your Condo Association has a $10,000 property deductible and covered damage is sustained to your unit, you can file a claim with your HO6 insurance company and they will pay the $10,000 deductible subject to whatever deductible you have on your condo insurance policy which is most likely $500 or $1,000.
And even though the deductible should technically be paid under one of these coverages and not the other, I’ve seen one insurance company pay it under one coverage and another insurance company pay it under the other. So save yourself the trouble of having to argue with an insurance company and have both limits increased accordingly.
Additional Condo Insurance Coverages Under an HO6 Policy
- Ordinance or Law
- Flood Insurance (requires a separate policy)
- Water or Sewer Backup
- Personal Injury Liability
- Identity Theft
- Jewelry, Watches, Furs, Guns or Collectibles
Other Products and Services We Provide
- Auto Insurance
- Homeowners Insurance
- Renters Insurance
- Mobile Home Insurance
- Business Insurance
- Motorcycle Insurance
- Boat Insurance
- Antique/Classic Car Insurance
- Personal Umbrella Insurance
- Multi Policy Discount
- EFT or Automatic Payments Discount
Discounts Above Vary By State and Insurance Company.
Coverages Are Subject To The Terms And Conditions Of The Policy Written and Exclusions May Apply.
Call Us Today to Eliminate The Confusion
As I stated previously, condo insurance can be tricky. You can’t just call someone and ask for a condo insurance policy without them reviewing the by-laws to see what you are responsible for insuring. Doing so could leave you either over insured or worse…under insured.
Call Cothran Insurance today at 434-239-2886 for a free quote on your condo insurance!