To state the obvious, a condominium is not the same thing as a house. Usually, there's no backyard or basement, and you don't have to worry about cutting the grass or shoveling the front walk.
Insurance is another area where homes and condos differ. Condo owners are typically responsible for insuring just a portion of their property on their own. However, rules differ from complex to complex, and it's important to ask the right questions to ensure you have proper insurance coverage.
Here are six things you need to know about insuring your condominium:
What does your master policy say?
From an insurance point of view, that means all individual unit owners have a collective responsibility for insuring areas of the complex owned in common -- building exteriors and hallways, the pool area, etc. A condominium association typically collects monthly dues from unit owners and uses a portion of these funds to insure common areas.
Meanwhile, the unit owner typically is responsible for separately insuring everything within the four walls of his or her individual unit.
The condo association's master policy, as well as association rules, should spell out clearly which parts of the complex are insured through association dues and which parts are not.
There are two broad categories of master policies, says Steve Slattery, a property underwriting manager for Liberty Mutual Group in Boston:
- Bare walls in. These policies cover all real property from the exterior framing inward but do not cover fixtures or installations within a condo unit. Features such as countertops, bathroom and kitchen fixtures, and flooring are not covered. If your condo association has this kind of master policy, you'll probably have a greater need for individual coverage, according to Slattery.
- All in. These policies cover fixtures, installations or additions within the interior surfaces of the perimeter walls, floors and ceilings of individual units. Condo owners under an all-in plan will probably have a more limited need for individual coverage, Slattery says.
There are also variations of the two types. These details should be spelled out in a condominium association's bylaws.
"Most bylaws will talk about anything within the four walls of the unit you own," says Matthew Cullina, the director of product management for MetLife Auto & Home in New York. "Everything else is owned by the condo association ownership. Knowing specifically what you own when you buy that condo is the first thing I recommend."
How much is the association deductible?
"Basically, in the event of a natural disaster or hurricane or whatever, it is spelled out in the policy," Cullina says. "If the condo association needs major work or there is major damage to the structure, the condo association will tender the claim to their commercial insurer, and they would get covered for their loss.
"But there would be a deductible, and that deductible would be assessed against all unit owners -- so if there are 10 unit owners, it would be divided 10 ways."
Cullina notes a recent trend toward higher condo deductibles.
"In the past it might have been only $5,000, but we've seen $25,000 and up to $50,000," he says. "That's the biggest one I've seen. You could really be hit with a bill that you weren't expecting or didn't know about if you didn't do your homework."
The coverage should be spelled out in the association's bylaws, Slattery says.
"A copy of the association's insurance agreement should have been given to the unit owner at the time of purchase," he says. "It specifies the responsibilities of the association and the individual owners.
"If the owner does not have a copy, he or she can obtain one from the association's board of directors, its business manager or anyone from the association responsible for addressing individual unit owner questions. The owner's condo insurance sales representative should be able to assist in answering questions about the insurance agreement."
How much coverage is appropriate?
Eileen Sutz, an agent with Allstate Insurance in Chicago, suggests estimating coverage by paying attention to how much other owners in the development paid for recent upgrades, such as new flooring, cabinetry and countertops.
"Another way we can roughly estimate that is we go by about half the market value for interior structures," Sutz says. "So if there's a fire, for instance, people have enough to replace their flooring, their cabinetry and their walls -- anything else that's actually considered their personal responsibility. That's a pretty good way to estimate it."
Cash-value or replacement-cost coverage?
What's the difference? Thousands of dollars, in many cases. Cash-value coverage replaces the value of the insured item minus depreciation.
"With actual cost-value coverage, there's depreciation based on the age of your contents," Cullina says. "If the TV was 2 or 3 years old, we'd go see what it costs today and calculate the depreciation."
In this example, the person who lost the television would receive a check for the amount that the TV was worth after two or three years of wear and tear.
By contrast, a person with replacement-cost coverage would receive a check for what it would cost to replace the old TV with a new one. Depreciation is not used in the replacement-cost model.
"I strongly recommend replacement-cost coverage for your contents, especially in a condominium association," Cullina says. "So if you had a loss, the insurance compensation would replace what it would cost if you were to buy it today."
Have you insured contents and structure?
What's the difference?
"I often tell my customers that if they were to turn their condo upside down, everything that falls out is a content," Sutz says. "Everything that stays is interior structure."
The latter would include flooring, wall-to-wall carpeting, lighting fixtures, countertops and cabinetry.
Condominium owners should approach insurance needs from a slightly different perspective compared with owners of single-family homes. Someone who owns a stand-alone single-family home typically looks at the price of replacing the structure (usually a house) first before determining insurance coverage for the possessions inside the structure.
Condominium unit owners should take the reverse approach, Cullina says.
"Condominium coverage is really built off your contents," he says. "You look to see what you have: electronics, furniture, furnishings, rugs, etc. That would be the first thing you need to assess to determine the value of your contents."
Next, determine which structural items inside your four walls you are responsible for insuring.
"You definitely need to gauge what all those things would cost if you had to replace them," Cullina says.
Sutz notes that from time to time there are gaps between what the condominium association covers and what a personal condo policy covers.
"I often ask customers to fax me the part of their bylaws that describes the common elements so I can figure out if they need anything in between or expanded coverage," she says.
For example, people need coverage if there is damage to the building that begins in a common area but continues through a unit owner's front door and into the unit.
"There are so many different possibilities of where there could be a gap," she says.
Sutz also specifies the need to insure special items, such as artwork, jewelry and furs.
"Every customer should be aware and talk to their agent about any special items and possessions they might have," she says. "An agent will typically ask about art or jewelry or fur, but things like baseball card collections, stamp collections and things of that nature may not come up in conversation. They should really think about what they have that is important to them so they can make sure they're covered in case their policies are limited -- jewelry, for instance, can often be limited unless you get expanded coverage."
Are you covered for flood and wind damage?
Cullina says the condo association should discuss the kind of coverage that's appropriate because a flood would generally affect the building's structure and coverage would likely fall under the association's master policy.
It is also worthwhile to consider personal flood insurance, Sutz says. Coverage is generally available through the National Flood Insurance Program, which is run by the federal government.
"The individual unit owner can buy their own flood insurance because the association's flood coverage probably won't cover anybody's personal contents or the interior structure," Sutz says. "The association insurance will rebuild the building, but if you're in a flood plain and the mortgage company requires the condominium association to have flood insurance, they're going to require the unit buyer to bring a certificate saying you have flood insurance to the closing.
"This is a warning light to the buyer and the customer to get personal flood insurance."
Sutz is careful to note that there is a difference between flood insurance and water backup coverage.
"Water backup coverage isn't federally mandated, but it's a very good idea to have if you're in a space where perhaps the basement has a lot of storage area and there's potential for damage to your personal items if water backs up through your sewers and drains. Sometimes people get this mixed up with flood insurance."
Slattery notes that coverage for windstorms would generally be covered under the standard condominium policy unless there is a specific exclusion attached to the policy.
"If windstorm is excluded, the consumer may purchase wind coverage through the state's wind pool association," Slattery says.