Insuring a condo is significantly different than insuring a home and is an area of insurance where we often find there is confusion and misunderstanding.
When you purchase a condo you own your individual unit outright and share in the ownership of the rest of the complex with the other owners.
The condo association customarily insures common areas like the exterior of the buildings and separate service and recreation buildings within the complex while each unit owner is typically responsible for insuring everything inside their unit.
The bylaws for each condo association include an insurance section defining insurance responsibilities of the association and each unit owner. It is advisable to review this section of the bylaws as these responsibilities can differ considerably from one condo association to the next. As a unit owner you need to understand your insurance responsibilities to be certain your individual condo insurance policy provides suitable coverage.
An individual condo insurance policy will provide coverage for:
- Dwelling – portions of the building that are your responsibility; this may include flooring, cabinets, countertops, and light fixtures.
- Personal Property – your personal belongings including appliances, furniture, clothing, dishware, and electronics. Be aware coverage is limited for some types of items, such as jewelry and collectibles, that can be fully insured with a rider.
- Loss Of Use – covers extra expenses you may incur if your condo is too damaged to live in while repairs or reconstruction is being completed.
- Liability – your financial responsibilities if a guest visiting your property is injured
There is an increasing trend among condo associations to transfer significant insurance responsibilities from the association to the individual unit owners. The reason being when there are claims covered by the association policy the association is responsible for the deductible (which can be significant, typically ranging from $2,500 – $10,000) and those expenses are, in turn, reflected in the monthly dues paid by association members. When association members push back against dues increases association boards look for ways to reduce significant expenses frequently by changing the bylaws to redefine what the association insurance policy does and does not cover and/or increasing the association deductible.
Increasing the association deductible can be a perilous path as, if multiple claims occur, projected savings can turn in to soaring unfunded budget expenses and deficits.
If an association has a $2,500 deductible and experienced 2 claims within a year they would be responsible for $5,000 of the repair costs.
If, however, the association had increased their deductible to $10,000 in an effort to reduce their insurance costs and then experienced 2 claims their portion of the repair costs would increase to $20,000.
With this in mind, along with the realization frequently losses are small and affect one individual unit, many associations are changing their bylaws to push more of the insurance responsibilities back to individual unit owners. That way if there is a claim such as a pipe bursts resulting in water damage to one unit the individual unit owner and the unit owners insurance company would bear the burden of the repair costs rather than the entire association.
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