Understanding Insurance For Condominium Owners
Many condominium owners are under the impression that additional insurance is not necessary due to the Master Policy held by the Association. This is most certainly not the case. It is very important for condominium owners to have their own coverage, called an HO-6 policy, to cover items not covered by the Master Policy.
First, let’s explore what the Master Policy generally covers. The Association is required to carry a Master Policy that covers the following items:
General Liability – covers the Association against liability claims for occurrences on common areas, such as a “slip and fall” or other injury.
Property – covers the common areas of the building, such as hallways, elevators, sidewalks, floors, balconies, roof and building equipment and the unit with all components that were originally provided when sold the first time by the developer such as appliances, cabinets, floor coverings etc.
Directors & Officers – covers the Board members against personal lawsuits for issues relating to their actions as a Board member. Legal defense and judgments can be paid on behalf of the Board member(s).
Crime & Fidelity – covers the Association in the event of theft of funds or other financial misconduct and should include coverage for the Managing Agent.
Workers Compensation – covers the Association employees in the event of injury while working on the property and is required by law.
There are several other optional policies that an Association may consider, such as flood coverage, employer liability or earthquake coverage. Each Association reviews their insurance needs with their agent and selects the appropriate coverage as necessary.
Now let’s talk about the HO-6 policy. The Master Policy generally will not cover your personal property, nor liability for an incident that may occur in your unit, nor upgrades to the interior of your unit. Generally, the Association is only obligated, in the event of a loss, to return the unit to its original condition at the time it was conveyed from the developer. That means if you put in hardwood floors, or stainless steel appliances, the Association would not cover those items in the Master Policy. You need your own insurance to cover those upgraded items. The HO-6 policy is similar to renter’s insurance, but incorporates some elements of a traditional homeowner’s insurance policy as well.
There are several things to consider when purchasing an HO-6 policy:
The Master Policy coverage – each Association is different, therefore you should send your governing documents and master insurance certificate to your agent to make sure you are getting the appropriate coverage. You also need to know the Master Policy deductible. In the event there is a loss caused by a pipe or appliance originating in your unit, you may be responsible for the deductible on the Master Policy. You need to make sure your HO-6 policy covers the deductible, which can be $5,000 – $20,000.
Value of your personal property – estimate the value of all of your personal property, including TVs, furniture, jewelry, clothing, collectibles, etc.
Liability coverage – you will need liability coverage to protect yourself in case of injury to another person in your unit, damages to another person’s property caused by a loss originating in your unit, or damages caused by negligence on your part. Your insurance agent can recommend the level of coverage for liability.
Loss of use – in the event you are displaced during repairs following a major loss, your HO-6 policy can cover expenses incurred for living outside of the unit for a period of time.
Loss Assessment – covers individual owners in case the Master Policy does not cover the entire amount of a liability claim or lawsuit and the Association assesses the difference to the unit owners, or may cover a special assessment that is levied to cover large unbudgeted and unanticipated repairs. If you rent your unit you can obtain loss of rent coverage.
Due to the HO-6 policy being secondary to the Master Policy of the Association, it is imperative that your insurance agent review your governing documents and Master Policy requirements to determine the correct coverage for you.
If your lender did not require you to obtain an HO-6 policy prior to approving your loan, and you have not otherwise purchased a policy, contact your insurance agent for more information for obtaining HO-6 coverage. If you already have an HO-6 policy, consider reviewing your policy on an annual basis to ensure your coverage is up to date. The most common change will be to the Master Policy deductible, which occurs at the renewal of the policy. When there is a change, the Association is required to notify all unit owners in writing of the new deductible amount. If you are unsure of the amount, contact your Board of Directors or Managing Agent for the most current policy information.
Understanding your insurance options is important to protect yourself and your assets, and most importantly, your largest investment – your home.
Author: Andrea Galler, Assistant Controller and IT Administrator, KPA Management