When buying a house, you know to get liability and property insurance for every structure on the property. You’ll also need protection for your contents. When you rent, you know you need insurance for liability and your contents only, since your landlord is responsible for the building. But when you buy a condominium, do you really know what you’re obligated to insure?
With a condo, you’ll still need contents coverage to protect your belongings. You’ll also need to have liability coverage and loss assessment coverage, which we’ll get into in a minute.
Then there’s the condominium building itself and your unit within the structure. Typically, unit owners are responsible for everything visible inside of their units, including wall coverings, tile, pipes and plumbing within the unit – virtually everything the eye can see. If there is damage to any fixtures, walls, or flooring of the condo, it is the responsibility of the unit owner to remedy the problem. Knowing where your insurance responsibility begins and the condo association’s ends is key to having the protection you need. That’s where additions and alterations (A&A) coverage – also known as improvements and betterments (I&B) coverage – comes into play.
A&A Coverage For a Condominium
A&A provides insurance for the portions of the building and items of real property – that is, that part of the condominium building that the unit owner actually owns. To fully understand your insurance obligations as a unit owner, you review the bylaws of the condo association. The only way to determine what is the unit owner’s insurance responsibility is to consult the bylaws.
One type of bylaws might cover only the shell of the building itself. That means the unit owner may be responsible to cover everything in the unit from the studs in. This includes sheet rock, wall coverings, floors, ceilings, cabinetry, and anything else built into the condo unit.
Another type of bylaws is often referred to as “all-in.” If the condo association takes an all-in approach, they will have insured the building as well as your unit. In many cases, while the unit owner will bear some responsibility, most damage to the walls, floors, ceilings, and cabinets would be the responsibility of the condo association, not the individual unit owner.
To further complicate the matter, bylaws can take an approach anywhere along the spectrum between the two described above. An experienced insurance advisor can help determine the necessary limits as rebuilding costs within the unit are not calculated in the same manner as rebuilding a home.
All In Doesn’t Mean All Covered
Even if the condominium association provides all-in protection, there are still some things a condo owner will want to consider when purchasing their own insurance. If the owner has made upgrades to the unit, the association will not likely be responsible for them. Let’s say you opted to swap out the standard cabinets for custom-built, added expensive wall coverings, or upgraded the flooring. If they are damaged in a fire, the association policy may only pay to restore the unit to the condition it was before any upgrades were done. Therefore, you’ll want to make sure that you have the appropriate limits for A&A coverage included in your policy.
Loss Assessment Coverage
Another additional coverage you need to understand is loss assessment coverage. If there is damage to the property outside of your unit that is not covered by the condo association’s master insurance policy, the association can assess all unit-owners to help cover those costs. This can include damages to common areas such as the exterior walls or roof, as well as deductibles on a condo master policy. This additional coverage is typically limited on most policies but can be increased.
Any property owner is wise to also have liability coverage. First, it properly protects you for incidents such as a visitor tripping and falling while inside your unit. In addition, it can protect you in the event that you have a loss that causes damage to surrounding units.
However, do you have enough? While you may have a modestly furnished unit with no upgrades or add-ons, your neighbors may have gone all out with custom cabinets, wall coverings and flooring. If are responsible for damage to a neighbor’s condo, and you do not have adequate liability coverage, you may find yourself on the hook and paying out of pocket for that damage. When living in such close proximity to others, it’s very common for something like a water leak to cause damage to someone else’s property.
Know What You Need
Owning a condominium unit can have plenty of advantages over renting or buying a single family home, but it comes with its own insurance concerns. Never assume you know what’s covered; you must read the bylaws. We also recommend speaking with a licensed insurance agent with experience in condominiums to help you buy the coverage that is right for you.
This post was originally run on February 29, 2016.
All insurance policies are different. Be sure to review your insurance policy for specific information about coverages available to you. Nothing in this post is meant to suggest a guarantee of coverage.