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Navigate the Complexities of Insuring Your Condo

January 19, 2022

In today’s highly competitive housing market, you may be excited when you think you’ve found the perfect home: a condominium in your price range with a great location and the promise of a lawn maintenance-free future. Before you finalize your purchase, you should first carefully review the association bylaws and the association’s master insurance policy. Even if you’ve been a condo owner for years, make sure you fully understand these important documents which can vary by association.

While some homeowners may be part of a homeowner community (think HOA) with bylaws that state limitations or requirements related to your property, this is different from a condo association. The difference between the two equates to ownership. With a condo, each member owns their individual unit with joint ownership of common areas. In an HOA, each member owns the individual property and their lot.

What Are Bylaws and Why Do They Affect Me?

Condominium bylaws govern the administration of the project or association. Typically, there is a board of directors who are elected or chosen to be responsible for the management of common elements, property, easements, and the affairs of the association. Insurance is another mandatory provision included in the bylaws. The bylaws indicate responsibilities of the association and it’s owners; as well as, the limits of coverage required by each party. All premiums for insurance carried by the association will be an expense of the administration (which is paid through association fees charged to each unit owner).

What most new condo owners do not realize is that each association can choose the limit of coverage for the association and how it applies to individual units and common areas.

The limits of coverage purchased by a unit-owner should take into consideration how the association insurance will apply following a loss.

What Am I Responsible For?

When purchasing a condo, you will need to purchase a condominium unit-owners policy, also known as an HO6 policy. Unlike homeowners’ insurance, which provides coverage for the exterior of the structure (AKA dwelling), the HO6 insurance form provides coverage for the interior of your unit. The limits you need to consider for HO6 insurance can vary by complex. Some associations may insure the full unit as originally built while other associations choose to insure only up to the exterior studs. In the first scenario, a unit owner will need to buy enough coverage for unit upgrades they have made, plus coverage for their personal property (contents) and liability. This section of coverage is commonly referred to as “improvements/betterments” or “additions and alterations.” Upgrades may include changing out countertops, flooring, or electrical fixtures. This number is fairly easy to target.

In the second scenario, the association may be willing to insure the unit up to exterior wall studs. That means the unit owner is now responsible for drywall, flooring, cabinetry, plumbing, and electrical fixtures. The limit needed in this scenario will be substantially more than the first.

What Else Should I Consider?

Much like a homeowner policy, condo insurance also covers personal liability, personal property, loss assessment, and additional living expenses. The HO6 policy form allows the insured to select the limit of coverage for personal property. Personal property is anything not attached to the unit.  Think of it this way: If you picked up your unit and turned it upside down, whatever would fall out is considered personal property. In order to determine how much coverage you may need, we recommend conducting an inventory of your contents.

Another very important and often overlooked coverage on a condo policy is loss assessment coverage.

This is an optional endorsement that protects a unit-owner who lives in a shared community. Common areas within the association that are accessible to all owners are also the responsibility of all owners. These areas can include pools, clubhouses, tennis courts, parks, and sidewalks/walkways. When a claim occurs in a common area, the association’s master policy will respond first. However, it is important to be aware that remaining out-of-pocket expenses not covered by the association’s master policy may be assessed to each unit owner. Most commonly, the deductible will be assessed to each unit-owner. If your association has a $250,000 deductible per loss, expect that deductible to be divided up by unit owners. For a complex with 100 unit owners, that’s $2,500 each. The loss assessment endorsement provides coverage for this expense, without applying your HO6 deductible. It is important to review your carrier’s contract language on this coverage. Most carriers limit coverage toward the association deductible to $1,000 paid on your behalf. In some States, where laws and regulations vary, it may be possible to endorse a higher limit toward the deductible benefit.

Your Insurance Advisor is Here to Help

Unfortunately, it’s very common for a condomium unit-owner to be underinsured. Typically this is determined after it’s too late and a loss has already occurred.

A licensed agent can help you navigate the association’s master policy and bylaws.

Reviewing these documents will help determine the appropriate level of coverage needed for your condominium and assure that your new—or existing—home is fully protected. Contact your Oswald personal insurance advisor for this peace of mind. Then relax and enjoy all the benefits of condo living!

For more information visit our Personal Risk page or contact:

Christel Romer
Client Manager, Personal Client Management


Note: This communication is for informational purposes only. Although every reasonable effort is made to present current and accurate information, Oswald makes no guarantees of any kind and cannot be held liable for any outdated or incorrect information. View our communications policy.