Homeowners vs. Association Insurance Comprehensive Coverage

Living in a co-op or condo means shedding many of the worries that come with renting or owning a single-family home. There are no worries over mowing the lawn or fixing that crack in the driveway. The doorman looks after your packages and the maintenance man is just a phone call away.

While co-op and condo living eases some of the worries of homeownership, there's one concern all property owners still have to stay on top of: insurance. Multi-family residential complexes are required to carry a comprehensive insurance plan—but is it enough coverage for individual residents? The short answer is no.

Knowing What's Needed

Every homeowner's association is different when it comes to insurance coverage. Some association policies will cover the land, the structure itself and fixtures within each unit. Other policies will cover everything except for improvements made to the private living space, either by the current owner or previous owner. Still other policies will cover only the buildings themselves. As with nearly all other association questions, the definitive answer to what the HOA is responsible for, versus what the homeowner is responsible for lies with the bylaws.

"It's important for co-op and condo owners to get in touch with their homeowner's association and find out how everything is set up and who's responsible for what," says Jonathan Lipton, president of ARM Insurance, a broker based in New York. Without that clarification, enormous problems could arise later, costing potentially thousands of dollars for either the co-op or condo owner, the homeowner's association, or both. A clear understanding of the bylaws and each party's responsibilities is imperative to having a well-insured residential community.

Covering the Community

To be properly insured, says Alex Seaman of HUB International Northeast, a carrier with offices throughout New York and New Jersey, a homeowner's association should have the following coverage in hand, at the very least: property insurance, general liability, directors & officers (D&O), boiler/machinery, crime, workers compensation, and an umbrella liability to maximize coverage in the event of lawsuits. While there's always room for more coverage, this type of master policy with these eight items will protect the association from most of the common issues that arise, from a slip-and-fall in the lobby to a blown boiler to embezzlement to a lost roof. By protecting the association as a whole from these potential troubles, the policy is protecting the community's residents as well.

"Roads, land, structures—these are the things that it's up to the HOA to cover and assess what kind of coverage they really need," Lipton says. The board needs to ascertain the replacement costs of the structures and amenities for which they are responsible in order to gauge the proper amount of insurance. That cost is based on potential construction needs and can range anywhere from $80 to $200 per square-foot, depending on the contents of the building and how the structure is built. These prices have nothing to do with market value, which would be significantly higher, Seaman adds.

Again, it's important to review your association's bylaws to best understand what needs to be covered, and by whom. Insurance brokers also will be able to help boards and managers decide what coverage besides property, liability and other common policies may be necessary. "We'll send out a risk manager to assess areas of need," Lipton says. For example, if a residential community rests on a dozen-acre plot of land and is open on all sides, the board might want to invest in an additional amount of crime coverage.

As important as the master policy is to maintaining the common good, additional insurance is a must for all co-op and condo residents. "Homeowners insurance is not required by any state law or anything," Seaman says. "But it is highly recommended. The insurance written for associations covers property and liability, but is not for individual unit owners."

Lipton agrees. "Whether it's a homeowner's policy or a renter's or co-op or condo policy, people are going to need some kind of coverage."

Protecting Me, Myself and I

Individual homeowner's policies should cover a variety of areas, including property—including improvements, additions or alterations made by the current owner or previous residents, and also general liability, to protect against the resident's own personal negligence. (If they left the water running in the tub and caused damage to the flooring or the ceiling of the homeowner below, for example).

For co-op and condo owners, the most common policy is the HO-6, also known as the Condominium Unit Owners Policy. HO-4s, known as Tenants or Cooperative Owners Policies, are also commonly written. These policies will protect homeowners and their possessions from such things as fire, windstorms, explosions, smoke, vandalism, theft, water damage from appliances, and even volcanoes, if the fine print is generous enough.

"Where the structure stops, that's where the unit owner's coverage should begin," Lipton says.

An HO-6 policy should also cover things such as living expenses in the event that the resident's home becomes uninhabitable due to damage caused by fire, storms or any of the other potential threats listed above. Not all additional expenses will be covered—only the difference between everyday expenses and the costs of things like hotels that have been incurred directly because of the situation.

An HO-6 also offers protection for personal liability, should an individual sustain some sort of injury or property damage as a result of the homeowner's negligence. The insurer will provide for medical expenses, but details on exactly how much is offered differs by policy and should be discussed with the insurers.

Additional coverage should be considered if the homeowner has a substantial amount of property or personal wealth stored in the co-op or condo unit. In most standard policies, items like paintings, collectibles, jewelry and other big-ticket items usually only receive a few thousand dollars worth of coverage—not nearly enough to cover a collection that may have been years in the making. Floater or endorsement coverage will provide for the additional coverage needed to ensure that artwork and other items near and dear to a resident's heart can be replaced.

Keeping Up to Date

Of course, choosing the right policy is only half the insurance battle. For associations and homeowners, making sure that the policies have been drawn up to suit the individual needs of the purchaser becomes vital. To do this, it's best to go with an insurance carrier or broker who specifically specializes in co-op and condo coverage. For associations, it's also important to have the input of the board and management.

"Have the board set up an insurance committee of three to five members to sit down with brokers or insurance consultants," Lipton advises. "Ask these board members to step up and take on the responsibility of making sure they understand what's needed for the association. They should know what's going on around them [in terms of building needs], what they're covering and what needs to be covered."

Policies should be reviewed bi-annually or annually. Seaman believes that these reviews should be overseen not just by board members, but by managing agents as well. In the case of insurance, it's always, always better to be safe than sorry.

Once the wish list for insurance is in place, associations and homeowners can turn to the insurance carriers or brokers to work out issues of cost. As with any important decision, it helps to have a number of proposals in hand before inking the deal. "It's still a relatively tight market for co-op and condo insurance," Seaman says. "Since there are so few carriers out there, you can limit your bids to two or so brokers who have expertise in this field."

While getting the best pricing is important to the bottom lines of both homeowners and associations, buyers should never skimp on coverage. "Too often people are concerned with premium costs versus the amount of coverage they're getting," Seaman says. Saving a few dollars now might be far more costly later.

For both co-op and condo associations and the people who call them home, possessing a sound understanding of insurance costs, needs and options is key to protecting people and keeping the things they hold dear safe. With the world outside protected by the association's master policy and the elements of home looked after with co-op and condo coverage, there's every reason for homeowners to be sleeping soundly at night.

Liz Lent is a freelance writer and regular contributor to The New Jersey Cooperator.

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