By Pat Wilderotter, CIRMS, CCIG
If you are new to condominium/townhome living, or have been a long time resident but never understood what insurance you needed, this article is for you.
Under your monthly assessments, you probably see “insurance” as one of the items you are paying for but that can be misleading. The insurance being provided, especially on the interior of the units, depends on the association’s declarations.
Typically, interior coverage falls into one of three categories with variations. There is “all in” coverage where we will rebuild back to where the unit was at the time of the loss. So, all upgrades that have been made, the association’s insurance will cover. Next, you have original construction, also known as “single entity” coverage, where we will rebuild according to what was original to the unit when sold by the developer. In this case, owners are responsible for any upgrades made since the units were first built. This can become tricky to determine when you are the third or fourth owner. Finally, there is what is referred to as “bare walls” coverage. In this case, after a loss, the insurance company for the association only provides coverage to the drywall of the unfinished floors, ceilings, walls and the subfloors. Items like floor coverings, cabinets, countertops etc. are the responsibility of the unit owner to insure. There can be variations on these three options like coverage on appliances and other interior items. Make sure to check your responsibility to obtain coverage on the interior items that the association does not cover according to the association’s declarations. When an association submits a claim, the insurance adjustor will ask to see a copy of the association’s declarations to know what the association is responsible to repair or replace and what falls onto the owner.
Once you know what you are responsible to insure on the interior of the unit, you need to consult your personal insurance agent. You will need to purchase an HO6 policy (sometimes known as a condominium owners policy). These policies should provide at least coverage for (1) dwelling/unit coverge for items you are responsible for, (2) personal property coverage, (3) general liability for anything that happens inside the unit, (4) loss assessment coverage and (5) loss of use. If you are renting your unit out, you will also need loss of rents coverage since you are a landlord.
The HO6 policy also offers coverage for the association’s deductibles that the owners will have to cover. Typically, if the association were to have a $25,000 property deductible for example, and you had a kitchen fire where the association insures original construction and the kitchen has not been updated, you would be responsible for the first $25,000 of damage. This could be covered under your personal HO6 policy if you had bought the right coverage. Also, being in Colorado, we know the importance of having loss assessment coverage after a hailstorm. The hailstorm deductible is typically a percentage of the building limit, often 5%, which is then shared by the number of unit owners. We are also seeing percentage wildfire deductibles in some areas so that would need to be covered under the loss assessment section of the personal HO6 policy. Loss assessment only applies when everyone in the community is assessed to pay the deductible after an insurance event. Special assessments, where owners are assessed for maintenance issues, are not covered since the work is not triggered by a covered insurance event. Confirm with your personal agent that there are no sub-limits that would apply if the loss assessment was to go to pay for the association’s deductible.
It is essential to know your responsibilities for the insurance that you will need to obtain to cover items that are your obligation as well as what association deductibles you will need to cover under your personal HO6 policy. This will eliminate the potential gaps between the association’s master policy and your personal HO6 policy.
Pat Wilderotter is past-president of the Rocky Mountain Chapter of CAI. She is one of 150 agents in the US to hold the designation of CIRMS (Community Insurance and Risk Management Specialist). Pat heads the HOA team at CCIG where she is an executive VP and Partner.
