From an insurance perspective, the difference between a condo and a home is that condo owners only cover part of their unit. How much or what part of the unit they must insure on their own is set out in the condo master deed or by-laws. We will ask for a copy of both when we write condo insurance so we can determine just how much of your structure we need to insure.
Typically condo owners own 100% of their unit from the four exterior bare walls inward, and own a portion of the rest, including the land. This is known as the common areas. The association purchases a master policy to cover the exterior and any other structures, such as clubhouses and swimming pools plus liability insurance in case someone is hurt while in a common area.
The condominium association will usually insure either 100% of all of the buildings in the complex or they will exclude the interior of each unit. Most commonly the association will do the latter and will insure only the building including the walls, the roof and floors but they will not be responsible for insuring anything inside your unit such as appliances, cabinets, carpeting, wallpaper, interior partitions, plumbing, wiring, and bathroom fixtures, among others. Therefore, the condo owner is responsible for repairing and maintaining everything in his or her unit.
However, if they do insure 100%, then the association will insure the building as well as most fixtures inside your unit including carpeting, cabinets and appliances. The condo owner is only responsible for his or her personal property inside the unit and for any additions or alterations made to the original structure.
Once you have determined how much of the building you are responsible for insuring, you can figure out the additional amount of coverage you need for your unit. Your policy should cover all items not covered by the association's master policy, plus any improvements you've made to the property. For example, if your association's master policy covers 100%, it will cover a certain dollar amount for your kitchen cabinets. If you upgrade the cabinets, you are responsible to insure the difference between the master policy's coverage and the value of your new cabinets.
In addition to figuring out how much insurance you need on your building, you will also need to figure out how much insurance to place on your personal property or contents. We know this can be a daunting task for people because a full blown inventory of each item can take hours or days. To make life a little easier check out our Home Inventory Tips {link} page.
Loss Assessment Coverage
As mentioned above, condo owners have a proportionate ownership interest in the Common Areas of the complex. In Kentucky most often this proportionate ownership is based on the percentage that your square footage bears to the total square footage of the entire complex. This percentage is set out in either the master deed or by-laws. For the sake of this example, let's assume your percentage is 1%. This 1% ownership in the association gives you rights to 1% of the assets, but also 1% of the liabilities are yours. What if a child should drown in the common swimming pool and the parents sue the condo association for $5,000,000 and win? Now let's assume that the association only carries $1,000,000 in liability coverage. The condo board would have no choice but to meet and determine that your share of this $4,000,000 shortfall is $40,000 and you would be assessed. If you didn't pay up, you would have a lien placed on your property. If the lien is not satisfied, the Board of Directors could foreclose on you. If there is a mortgage on your unit, the lender may step in, assume ownership of the unit and pay the special assessment as this may be the only way they can have a clear title on the unit so it can be sold.
Loss assessment coverage is designed to protect you against such a special assessment. The condo policy you buy will automatically give you $1,000 coverage, but you can increase that amount up to $100,000. The premium for increased limits is modest and the coverage you buy would in most cases cover assessments for losses that would have been covered by your condo policy if the event had occurred on your property. It won't cover assessments for maintenance issues like regular painting or roofing, building defects, defects in materials and workmanship, etc.
To protect your home contact our personal lines advisors Debbie Hayes or Becky Hedgspeth today or Get a Quote Now.
