- - Thursday, September 1, 2011

The prospect of a carefree lifestyle appeals to many condominium buyers, but they still must consider insurance coverage.

The condominium association is responsible for the exterior of the units and the common areas and must have a master insurance policy to cover its liability for anything that happens on the property. Nevertheless, condo owners are not off the hook when it comes to insurance. They need to purchase home insurance to cover the inside of their home and their personal property as well as to protect themselves with liability insurance if they cause damage to another home in the community or someone is injured in their home.

“Condo insurance is kind of like mixing renters insurance and traditional homeowners insurance,” said Thomas Bigoski, principal of Thomas Bigoski Insurance Agency in Gainesville, Va. “It’s also one of the most frequently incorrectly written types of insurance because it is secondary coverage to the master policy of the condo association.”

Mr. Bigoski said that although condo insurance was not always required by lenders in the past, most lenders today require that condo owners purchase insurance equal to at least 20 percent of the value of their home, regardless of the amount of insurance carried by the condo association.

Jeff Brown, president of the Brown Insurance Agency in Manassas, Va., said homeowners and their insurance agents must read the condominium documents to determine what type of insurance coverage the condo association has, including the amount of insurance and the size of the deductible, in order to determine how much insurance the individual owner needs.

“Some master condo policies offer all-in coverage so that the homeowners only need to insure the air within the space and cover their own liability, while others require the homeowners to insure their own appliances and interior systems,” Mr. Brown said. “The best thing for a condo buyer or owner to do is to forward the condo documents to their agent or insurance company to make sure they are purchasing appropriate coverage.”

Condo association policies can be written to insure just the building, leaving coverage for interior features to the homeowners; to insure the building and items within each unit as originally built other than the owners’ personal property; or to insure the building and unit fixtures and any improvements.

Mr. Bigoski said condo owners need to understand that the master policy for the condo association often covers the buildings to reconstruct them as they were built originally and will not cover improvements, such as updated kitchens or hardwood flooring, that have been added to a home.

Raynold Mensah, a State Farm agent in Bethesda, explained that there are five basic sections of condominium insurance for homeowners:

  • Building property. This part of the policy insures any part of your structure that is not covered by the master policy, especially any improvements you made. If you’ve upgraded your condo and something was destroyed, this part of the policy ensures that your condo will be restored to the upgraded condition.
  • Personal property. “Your personal property includes things like your appliances, TV, furniture and clothing,” Mr. Mensah said. “Most insurance companies offer you the option of covering the depreciated value of your personal property or the actual loss that was sustained. We always recommend that people choose to have the replacement-cost coverage to make sure that they are reimbursed for what it will cost them to replace every item in the home.”

Homeowners need to make an estimate themselves of how much it would cost to replace all their clothing and personal items in case of a total loss because of a fire or some other disaster.

“If you are a recent college graduate without a lot of possessions, $10,000 might easily cover everything, but for someone with a lifetime’s worth of furniture, clothing and electronics, it could be much higher,” Mr. Brown said. “Replacement-cost coverage will cost a little more, but it is definitely worth it to make sure you are covering what it costs to repair or replace everything, not what it is worth now.”

In addition, condo owners with jewelry, art, furs or collectibles should get what is called “scheduled” coverage for individual items above the typical insurance of $1,000 per item.

  • Loss assessment. “Loss assessment protects individual owners in case the master policy of the condo association does not cover the entire amount of a liability claim or major property damage,” Mr. Mensah said. “The condo association could assess an amount of each individual owner to cover the gap between the association’s insurance and the cost of a liability lawsuit for someone who is hurt on the property or the cost to make major repairs. We usually recommend at least $5,000 in this coverage. In Maryland, a law was passed that caps the amount of an individual assessment at $5,000.”
  • Liability. Condo owners also need to have their own liability coverage to protect their assets in case someone is injured within their unit or they cause damage to another home.

“One of the most common problems in a condo is water damage that spreads from one unit to another,” Mr. Mensah said. “The minimum coverage for liability insurance is $100,000, but that may not always be enough. To upgrade your coverage to $300,000 usually costs only about $10 more per year, so it may be worth it to get extra coverage.”

Mr. Brown said liability insurance is extremely important, even for condo owners who feel they have enough money in savings to cover damage to or repair work on their home.

“Once guests enter your condo, your master policy won’t cover anything that happens to them,” Mr. Brown said. “If you have assets to protect, you should have a personal liability policy that applies both on and off your premises.”

Condo liability policies typically range from $100,000 to $500,000 of coverage, but condo owners also can purchase an umbrella insurance policy that provides additional protection of $1 million or more over both the condo insurance and their auto insurance.

  • Loss of use. This covers the expenses of condo owners if they must live elsewhere while the condo is repaired or rebuilt. Some insurance companies limit this coverage to a specific dollar amount, while others cover all living expenses up to a time limit such as one or two years.

Most insurance agents recommend an annual insurance checkup to make sure your home and its contents are properly protected. For condo owners, that checkup requires a look at their association documents as well as their personal insurance policy.

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