CONDOMINIUM INSURANCE

If you own a condominium, you know that you alone own a certain portion of the condominium premises. In this respect, you have a sole interest in a clearly designated piece of property. You, along with the other members of the condominium association, have a group or undivided interest in other parts of the condominium premises.

If you own a condo or co-op, you depend on two insurance policies for protection: your own coverage and the insurance purchased by the condominium or co-op board for the common areas of the property that you share with the other owners, like the roof, basement, elevator, boiler and walkways.

Even before shopping for your own coverage, you must determine where your responsibilities end and those of the condo or co-op association begin.

Sometimes the association is responsible for insuring the individual condo or co-op units as they were built, including standard fixtures (the bathtub, for example). The individual unit owner is responsible for any alterations to the original structure of the apartment, like the addition of a bathroom or the remodeling of a kitchen. Typically, this includes not just alterations you made yourself, but those made by previous owners too.

But in other cases, the condo or co-op association is responsible only for insuring a unit up to its bare walls, floor and ceiling. The owner must insure kitchen cabinets, built-in appliances, plumbing, wiring, bathroom fixtures, and so on.

The only way to determine what you have to insure yourself is to read your association’s bylaws and/or proprietary lease (and get an explanation for anything you don’t understand). That should be your first step.

Extra Coverages for Condos and Co-ops

Condominium and Co-op insurance provides all the standard homeowners coverages - property, liability, additional living expenses, improvements, and betterments.

Condo and co-op policies provide some of these coverages for higher limits than the renters policy does. For example, the typical condo and co-op policy will cover additional living expenses for 40 percent of the amount of insurance on your belongings, and improvements and betterments up to 20 percent of the amount on belongings - about twice as much as renters policies usually give. And you can buy higher limits if you need them.

Condo and co-op policies also provide loss assessment insurance, a coverage that isn’t needed by homeowners and renters.

What Is Loss Assessment Coverage?

An elderly man visiting your building on a hot day in August steps into the elevator, which gets stuck between floors. He’s trapped for several hours. Neither the air-conditioning nor the elevator alarm bell is working. Nobody hears his call because it’s the middle of the day and everyone who lives in the building is either at work or on vacation. The man has a stroke. His children successfully sue the condominium association for $2 million, saying the board ignored repeated complaints from residents that the elevator wasn’t being properly maintained.

The association’s insurance policy provides liability coverage for only $1 million. That means that you and the other unit owners will be assessed for the additional $1 million. This is the point at which you’ll turn to the loss assessment coverage in your own policy.

Loss assessment coverage is usually limited to $1000, but can be purchased for up to $50,000. Regardless of the limit, loss assessment coverage will respond only when assessments are made to meet a peril that is covered, but underinsured, in your building’s policy. Thus, coverage would pay for the liability assessment or for an assessment to help pay the deductible in the building’s policy. But it’s not going to cover an assessment to hire a second doorman or to refurbish the lobby, for instance.

Replacement Versus Market Value

As a condominium or co-op owner, you live in a building whose coverage against fire and all the other perils insured against in a homeowners policy is bought by the association, not the individual unit owners.

Condominium and co-op owners are sometimes troubled by the fact that the building’s insurance coverage doesn’t reflect the market value of the individual co-op or condo units. This is because the building is covered for replacement value, which doesn’t include land value, air rights, or the laws of supply and demand in a hot real estate market.

If you live in a building that would cost $5 million to rebuild, your condo or co-op association won’t be able to buy a policy for more than that amount - even if there are 45 apartments in the building and each has a market value of $300,000 for a grand total of $13.5 million!

Another way to put this is that the building’s insurance company is covering the roof over your head, not the value of your investment in real estate.

When You Shop for Coverage

As with all types of insurance, you should get several quotes on tenants, condo or co-op coverage. The rate you pay will depend on the same factors that influence the cost of homeowners coverage: the structure of the building you live in, the quality of fire and police protection, the insurance company’s loss experience in the neighborhood you live in. Prices vary from one company to another and comparison shopping will get you the best coverage for the lowest cost.

When comparison shopping, ask each company representative:

* How much the policy provides for additional living expenses or loss of use coverage and whether you can buy a higher limit if you want to. (You might want to do this if your normal living expenses are much lower than what you’d pay to live in a hotel or rent another apartment in your area.)

* How the size of a deductible will affect your premium. Remember that, as with all coverages, the higher your deductible, the less the coverage will cost.

* How much additional premium it will cost to cover your belongings for their full replacement value instead of actual cash value.

* What the policy limits are for jewelry, furs, and any other valuables.

* What discounts you might qualify for. Many companies reduce their premium charges on tenants insurance when the policyholder has installed burglar alarms and smoke detectors, just as they do for homeowners.

Before buying coverage, make a list of possessions especially important to you and ask the representative if the policy insures them all for their full replacement value. You should also ask about any business furnishings or equipment you use at home. A personal computer that you use for work at home, for example, may not be covered for its full value.

Please note that the precise coverage afforded is subject to the terms, conditions, and exclusions of the policy as issued. This explanation is intended only as a guideline. This information is not intended to be considered investment, tax or legal advice. It is provided, for your education only. This is not an insurance contract. All terms and coverages are defined solely by your policy.

For more details, please call a PaulBalep representative toll-free 1-800-964-8614 to receive a free, no-obligation quote. Like so many satisfied clients, we think you’ll be happy you did. And to set up a meeting to discuss additional insurance and financial goals: Visit us online at www.paulbalep.com, or e-mail us at info@paulbalep.com.

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