Momentum - Business to Business Online Magazine | Page 28
Insuring a
Condominium
By: Jan Laman, [email protected],
Harbour Insurance Services, Inc
Insuring a condominium unit is more complicated than
insuring a single-family home, because condo ownership
involves laws and contracts that affect the way insurance
should be provided. If you own a condominium, here
are some tips you can use to be sure your investment is
protected.
There is no way to arrange insurance on a condo unit
without referring to the laws and contracts affecting
condominium ownership.
• The Texas Uniform Condominium Act includes an
entire section regarding insurance on all condominiums
no matter when they were built or formed.
• The Condominium declaration (including
amendments) creates insurance obligations for both the
condominium association and unit owner. Sometimes,
additional information regarding insurance can be found
in the condominium bylaws and rules.
Your insurance agent can help with these complicated
issues, but ultimately it is your responsibility to purchase
the right kind and amount of insurance. Seek information
and advice from your attorney and condominium manager
regarding insurance requirements for your condo unit.
Don’t expect your insurance agent to interpret the laws
and contracts or provide the final word on the appropriate
types and amounts of insurance.
Amounts of Insurance
You face no more important decision than how much
insurance is needed on the real property portion of
your unit. The consequences of under-insurance could be
disastrous for your family in the event of a major loss such
as fire, hurricane or tornado.
The real property portion of the unit may or may not be
covered on the association master property insurance
policy, so you need to decide how much coverage you will
purchase on your own unit-owners policy.
There are three possible ways condo real property can
be insured on an association master policy: Bare Walls,
Original Specifications, and All-Inclusive. Review your condo
declaration, bylaws and master policy, read supplemental
material provided by condo managers, and talk to the
managers and others to gain some insight into which of
those three concepts is used to insure real property inside
the units on the master policy.
Condominium insurance experts recommend that the
default amount you should purchase on your own condo
policy – or at least a good starting place – is the full
replacement value of your unit, no matter which method
is used to insure the real property on the master policy.
The experts make this recommendation for the following
reasons:
• The association master policy is c ontrolled by someone
else – generally a group of well-meaning and unpaid
volunteers who may not be familiar with the intricacies
of a commercial insurance program.
• The master policy could be canceled or not renewed
without sufficient notice to the unit owners and lenders.
• The amount of insurance on the master policy may
not be sufficient to cover a total loss. Or, it may be
insufficient to cover a partial loss if an under-insurance
penalty is applied.
• The master policy may exclude some type of major
loss that is covered by your unit- owner’s policy.
• The master policy may contain a large deductible. If a
loss involves only one or a few units, the amount of
damage may not exceed the deductible.
• The insurance company could be insolvent and unable
to meet its financial obligation to pay a claim.
• The insurance company may have grounds to deny a
claim due to violation of a policy condition.
• The condominium declaration may hold unit owners
responsible for damage to the condominium
• unit caused by the negligence or willful misconduct
of the owner, an occupant of the owner’s unit, or the
owner or occupant’s family, guests, employees, agents
or invitees, even when such damage is covered on the
master policy.
There is no question that carrying the full replacement
value on your unit-owner’s policy may duplicate coverage
provided on the association master policy. But duplication
of coverage is far superior to the alternative: not enough
coverage.
How can you determine the replacement value of your
unit? Consider a number of factors, including:
• Unit purchase price. The original purchase price
of a recently-purchased condominium includes land,
common elements and amenities, as well as the value
of the unit itself, so this amount by itself may not be an
accurate measure of the replacement value of the unit.