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Coverage Options for Condominium Unit Owners

Condominium owners are less likely than homeowners, though slightly more likely than renters, to be required to supply evidence of insurance when they purchase or take possession of their unit.

Regardless of whether documentation of insurance is required by a condo unit owner’s homeowner’s association (HOA), all unit owners need one or more types of personal insurance to protect themselves and their homes. HOA coverage is simply not sufficient protection for either a unit or the unitholder’s finances in the event of an emergency. Which types of insurance condominium unit owners need and in what amounts will vary. Below are some common types of insurance condominium unit owners should consider purchasing for their protection.

Loss Assessment Coverage

When the master insurance policy purchased by condominium complex’s homeowners’ association (HOA) purchased is inadequate to cover the full costs of damage done to the whole of the complex or shared spaces, an HOA can push the uncovered portion of the total cost to condominium unit owners. HOA coverage will also not be available until after the policy’s deductible has been met. Both of these costs, excess damages and the HOA deductible, must be paid by individual condominium unit owners.

To avoid paying such potentially high and unexpected expenses out of pocket, unit owners can purchase loss assessment insurance coverage for themselves. Condominium unit owners can also rely on loss assessment insurance in the event that they are called upon to help shoulder the costs of injury liability for guests or residents injured in public areas of the complex.

Loss assessment coverage does not come standard in insurance policies for condominium unit owners, but it is available from nearly all insurance companies upon request. As with other insurance riders, deductibles, limits and caps may apply. Condominium unit owners can determine what level of loss assessment coverage they need, if any, by reviewing their HOA insurance policies and looking at the coverage levels and deductibles it contains. The lower the HOA’s coverage or the higher its deductible, the more important it will be for unit owners to have loss assessment protection.

As with all forms of insurance, condominium unit owners’ loss assessment policies only cover standard emergencies or incidents. Coverage will not extend to floods, earthquakes and other exempt catastrophes unless the policy holder requests and receives an additional coverage rider naming those and/or other commonly exempt causes of damage. Likewise, particularly expensive belongings or upgrades to a condominium unit (e.g. new flooring or countertops) may need supplemental insurance to ensure they will be reimbursed at their whole value rather than the much lower category cap.

Personal Liability Coverage

Which portions of a condominium are covered by HOA insurance varies widely from complex to complex. Walls, ceilings, floors and the utilities behind them may or may not be covered, depending on the complex. To what degree they are covered and after what level of deductible also changes. HOA policies commonly do not cover water damage or sewage backup, even though both of these have the potential to be extremely expensive to mitigate and repair.

To determine exactly what his or her personal liability coverage needs are, unit owners should check their HOA policy to find out if it is an “all in” or “bare walls” policy. All in policies protect units as they were originally constructed and comprise the units’ walls, floor, ceiling and original fixtures. Bare walls policies cover only the walls, ceiling and floors themselves. Nothing attached to any of those things, such as kitchen counters or bathroom fixtures, is covered. Condominium unit owners will need more expansive coverage if their HOAs have bare walls policies than if they have all in policies.

In either case, unit owners should ensure that their private liability coverage extends to categories of damage (such as water damage) that are lacking in their HOAs’ policies.

Supplemental Riders

Supplemental insurance riders provide extra coverage for condominium unit owners who need to protect themselves and their belongs from threats or damages not covered under standard policy terms. Common examples include floods or earthquakes. Additional riders may also be used to document the value of high-cost items, such as jewelry, and to guarantee that if the specified item is lost, stolen or damaged the policy holder will receive the full value of the item back, rather than simply the maximum reimbursement amount that the jewelry category is typically capped at by their insurer(s).

Supplemental insurance riders are particularly important in situations where HOA insurance coverage is scant. For example, if a unit owner’s HOA insurance policy does not contain a rider for hurricane damage and the unit is subsequently damaged by a hurricane, no insurance assistance will be available to the HOA for repairs to the building. A unit owner could end up responsible for the full cost of all repairs unless he or she has personal coverage for hurricanes under a supplemental rider on his or her own policy.

As noted above, supplemental riders can also be crucial in the event that unit owners have significantly upgraded the surfaces or fixtures of their homes. Many HOAs only purchase sufficient coverage to restore damaged units to their base level. Supplemental riders on a unit owner’s private policy will be necessary to make up the difference in cost between the base unit and the owner’s upgrades. Otherwise, in the wake of an incident, the unit owner will need to pay that difference out of pocket.

Umbrella Insurance

Umbrella insurance is a form of secondary insurance, which means it cannot be purchased alone. Condominium unit owners must already hold a personal liability policy before they will be allowed to add umbrella insurance, if they wish. If liability insurance is “Plan A” for recovering from a negative incident or severe weather event, umbrella insurance might be considered “Plan B.” It kicks in only after all possible payouts from a unit owner’s personal liability policy have been collected.

Umbrella insurance is largely designed to cover excessive or extraneous costs related to insurance claims, such as legal or litigation fees. In the event that an individual is injured in a unit owner’s condominium or in a communal area of the complex through some fault of the unit owner, the unit owner in question will be legally liable for some or all of the inured party’s medical expenses. If the case goes to litigation, they may be responsible for legal fees, as well.

Most standard personal liability insurance policies place firm caps or limits on the amount of damages they are willing to pay for in such events. If actual costs exceed those limits, it is left to unit owners to pay the difference out of their personal funds. Umbrella insurance policies begin paying where standard liability insurance cuts off, preventing unit owners from bearing the brunt of excessive or extreme medical or legal costs associated with a claim.

At an average of $100 to $150 in annual costs for $1 million in coverage, umbrella insurance is relatively inexpensive, making it attractive to many unit owners. Unit owners who wish to purchase this coverage, however, will need to do their homework as some limitations apply. For example, some insurers will only offer umbrella coverage to individuals who already hold other policies with them. Braided together with other forms of coverage, umbrella policies can ensure that condominium unit owners are as prepared as possible for every eventuality.

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