Insurance is something no one likes to think about – until disaster strikes. It’s something you pay good money for, but you can only win by losing. Yet insuring your property, whether your home or an investment, is a basic step in protecting your assets. Condo owners and tenants alike need to be aware of the risks they are assuming by not having insurance.
Bad things happen
You need insurance to provide a safety net when the unexpected fire, flood, or theft takes place. If a visitor is injured on your property, you need liability insurance for their medical expenses. Owners of single family homes have a clear image of their insurance needs. They are required by the mortgage company to maintain coverage in case of a loss. The bank does not want to lose the security of their loan in case of disaster.
The situation is different in a condominium. Your ownership is abstract, so it’s more difficult to determine the need for insurance. Your property is shared with others in the same building or on the same land. In fact, most condo owners do not have an individual insurance policy on their property at all! This means that any loss not covered by their association will be at their own expense.
Case Study #1: Water Intrusion Into Your Condo
The most common scenario involves water. Whenever there is a leak from an upstairs unit, the roof, or the next door apartment into your property, insurance may save the day. Who is responsible – the building, the neighbor, or you? Not an easy question since it depends on precisely what leaked. Generally, owners are liable for damage if the water came from an element (such as a pipe) that they own or serves their unit exclusively. But even if a neighbor’s pipe causes the damage, they may not take responsibility.
Your own washing machine or toilet could also cause the damage. Sometimes a plumber or handyman fails to properly close off water lines in doing work, and damage takes place in your unit. If you are out of town when this takes place, you’ll have a big surprise when you return!
Case Study #2: You Damage Your Neighbor’s Property
Since your pipe could also cause water damage to another unit, you need protection from potential claims from other parties. And don’t forget that there are many costs that can be involved: repair of the source of the water or leak, restoration of walls and ceilings and floors, and possibly mold growing within hidden areas that will need to be remedied by an EPA-certified contractor. And if your leak happens to damage their plasma TV or other valuables, the costs will escalate further.
Frequently Asked Questions
Q: Do my condo maintenance fees pay for homeowner’s insurance on my unit?
A: No. The association’s policy insures the exterior and structural portions of the building only, not the interior of your unit or your contents. This policy also covers the shared areas of the development including walkways, grounds, elevators, lobby, amenities such as pool, and parking areas – known as the “common elements” of your building. The coverage includes both fire coverage (known as hazard insurance) and liability insurance.
Q: What do I need to insure in the interior of my condo unit?
A: You should insure against your condo interior being damaged by fire, smoke, theft, and water, to name some of the more common problems. Your improvements such as wall and floor coverings, cabinetry, and fixtures are also owned by you not the association, so your policy should cover these in case of damage. Your contents such as TV, stereo, computers, furniture, clothing, etc. also need to be insured. You should include coverage for liability, which protects you in case of a lawsuit due to injuries that occur in or on your premises.
Q: If I am renting my condo, do I need the same insurance?
A: Yes. The main difference is that you do not generally own the interior walls or floors of your condo so you do not need to insure them! Otherwise, your insurance needs remain the same. You still need to protect yourself and your possessions against the same risks.
Q: If I have a leak in a water pipe and my unit is flooded, won’t the building insurance pay for my losses?
A: That depends on whether the pipe that caused the leak is a “common element” owned by the association, or a part of your unit alone. If the pipe is within your unit, you will need to pay for the repairs out of pocket unless you have condo insurance. If the water is coming from another unit above or next to you, another owner may be responsible who may or may not have insurance coverage. And if your water seeps into another adjacent home, you may be held responsible for your neighbor’s damage, too!
Q: How do I know exactly what is covered by my condo’s Master Policy?
A: Ask your managing agent (the company to whom you pay your maintenance fees) for a copy of the Insurance Summary, which will define what the building covers in their policy. Then you can be sure there are no gaps in your coverage.
Q: If I have to move out because my home is seriously damaged, will my condo insurance cover my hotel expenses or will the whole family have to sleep in the park?
A: You don’t need to become homeless! “Loss of Use” coverage will help you set up a temporary living situation if your home is uninhabitable due to a loss covered by your policy. There is also coverage for the increase in living expenses due to the need to eat in restaurants, for example, while your home is being repaired. If your condo is occupied by a tenant, they could expect you to pay their out of pocket expenses during their lease period.
Q: I have some very expensive jewelry in my home. How do I get full coverage on these items if someone breaks into my home and steals it?
A: To keep the cost of insurance down, there are limits on the coverage for certain items such as jewelry, watches, coins, and firearms. You should talk with your insurance representative to find out how to get additional insurance for your unique needs; otherwise you may not have the coverage you expect if disaster strikes.
Q: How do I get coverage in case my dog injures another person or animal?
Your condo policy’s liability coverage will help you pay for injuries to people or damage to their property if caused by your pet. Keep in mind that certain breeds of dog will be more expensive to insure due to their history of aggressive behavior, even if Brutus is really a sweet puppy. Be sure to tell your insurance agent that about your dog or any claim could be denied.
Q: Is there anything that is specifically not covered on my policy?
A: All policies have exclusions, which are circumstances that the policy is not intended to cover. Typical exclusions may be wear and tear, rust, mold, rot, contamination, settling and cracking, and damage by birds, insects, or livestock.
Q: What does condo insurance cost?
A: It is actually one of the least expensive types of insurance you can buy, since the major coverage of the structure is not needed. Like all insurances, it will vary based on the coverage you need.
It’s not fun. No one is excited about getting insurance, but if you consider the alternative, it is well worth the price you pay. Be sure to consult with an insurance agent to find out what coverage you need on your condo home or rental.
If you have experienced condo damage from flooding, theft, fire, or other disasters, feel free to share themn in the "Feedback" section of this article so others can avoid these problems! For individual help with other real estate issues call (808) 951-3215 or email me at stephanieg@remax.net.
