Every piece of property – house, apartment building, mall or condo – needs to have insurance coverage. What kind of insurance and how much are always the most pertinent questions. Because a condominium combines ownership interests of individual owners and a condominium association, the two function cooperatively to insure all aspects of the premises.
A condominium usually will incorporate two insurance policies to cover the property properly. The homeowners’ association maintains one policy; the individual unit owner carries the other. Ideally, these are complementary policies. Together they cover everything that can go wrong without overlapping coverage. There are circumstances in which the HOA covers all insurance needs, but each HOA operates differently. The codes, covenants and restrictions for the complex, known as CC&Rs, spell out the insurance responsibilities of the HOA and the individual unit owners. The HOA's master insurance policy should correspond to what the CC&Rs require. Read both before you purchase a condo.
The HOA coverage usually falls into one of two categories. The first is “bare walls.” This type of insurance covers the walls, roof, floors, elevators and all common buildings and structures such as pools, community clubhouses and common open areas. The second type of insurance is single entity or "all in." This covers everything in the bare walls policy plus all real property from the exterior framing inward, including countertops and cabinets, bath and kitchen fixtures, walls and floor coverings. When the HOA coverage is single entity, personal property – like furniture and built-in improvements such as a larger, upgraded kitchen – is the responsibility of the individual unit owner. When the HOA coverage is bare walls, the individual unit owner also must insure countertops, cabinets, floors and wall coverings. Essentially, the individual unit owner insures everything the HOA doesn't.
Insurance policies are usually cash value, replacement cost or some variation of the two, such as replacement cost with or without building code upgrade. The trade-off is obvious – the better the coverage, the more costly the policy. Understand specifically what the insurance pays under which circumstances to know and plan for the ramifications. A cash value policy may not be enough to rebuild in the event of catastrophic damage.
If your condominium is in an area subject to floods, hurricanes, mudslides or earthquakes, understand whether your HOA master policy specifically covers damage and to what extent. Use the same hand-in-glove approach on these issues when considering your own policy – buy insurance for whatever the HOA has not covered.
Every insurance policy has a deductible – the amount of loss you must cover before the coverage pays. Deductibles on personal policies range from $500 to $5,000. Deductibles on HOA policies range from $5,000 to $50,000. There is a trade-off between policy cost and your deductible. The higher the deductible, the lower the monthly premiums. Understand and plan for deductible coverage should the worse-case damage occur.
Mary Gallagher runs Mary Gallagher Planning (mgaplanning.com), an urban planning and consulting business in San Francisco. She is the former assistant planning director for San Francisco and planning director for San Mateo. Gallagher has been writing about real estate, development and land use for numerous websites since 1995. She holds a master's degree in historic preservation planning from Cornell University.