Although condos (condominiums) have been around for a long time, they have been gaining popularity over the past several years. As the population ages, retirees are choosing condo living so they can enjoy home ownership without many of the associated maintenance issues that become difficult as they age. Condos are also typically smaller than many single family homes, so it’s a good way to “downsize.”
At the other end of the spectrum, many young folks are choosing to buy a condo for similar reasons- less hassle with maintenance and upkeep while they live their busy, mobile lives. They also appreciate the opportunity to build equity by owning the property instead of simply paying rent on an apartment.
Regardless of which category you may fall into, there is often confusion when it comes time to insure the condo- how much is needed? And what are you (as the condo owner) responsible for insuring?
Let’s begin first by discussing the differences between Ohio homeowners insurance and Ohio condo insurance (because they ARE different). We’ll then move into the two main types of condo agreements and how condo insurance responds to these agreements.
How is condo insurance different from homeowners insurance?
The main difference lies in what part of the building you own and what part you are responsible for insuring. A typical homeowners insurance policy insures an entire dwelling (such as a single family home). When you buy a single family home, you are responsible for insuring the entire structure (and if you have a loan, you’re definitely responsible for the whole thing!)
When you buy a condo, typically the condo is part of a larger association (think a group of condos). The association generally owns some common areas (think of a clubhouse, a pool, green space, streets and maybe even sidewalks), but usually owns a portion of each condo. The parties in a condo agreement are the association and the individual unit owners. So each party is responsible for insuring a portion of the condo based on the condo agreement.
What are the two types of condo agreements?
- Bare walls Concept – Unit owner is responsible for insuring all building items defined as part of the Unit in the Declaration of Ownership.
- Broad Form (Single Entity) Concept – All building items are insured by the Association. The Unit owner is only responsible for items of personal property.
What do these two condo agreements mean?
First off- Bare Walls. The agreement spells out exactly what the condo association is responsible for insuring and what you are responsible for insuring. For example, the condo agreement may say the association is responsible for insuring the “Common Elements”, while you are responsible for insuring your “Unit.” Examples of Common Elements include the condo property not included within the unit and easements through the unit for the furnishing of utility services to units and common elements (think piping, wiring. etc.). The Unit is usually described with references to the ceiling, floor and walls, and it is a VERY specific description.
The most typical example we see is a variation of the Bare Walls Concept- the association is responsible for insuring the structure itself and the unit owner is responsible for insuring the walls inward. This would include drywall and anything attached to the drywall, such as fixtures, counter tops, cabinetry, closets, etc.
Second- Broad Form. The agreement states the association is responsible for insuring all building items. The Unit Owner is responsible for insuring personal property only.
How do these two condo agreements relate to my condo insurance?
Let’s start with an example of a typical condo policy (HO6 in the insurance world).
Coverage A- Building
Coverage B- Detached Structures
Coverage C- Personal Property
Coverage D- Additional Living Costs
Coverage E- Personal Liability
Coverage F- Medical Payments
Hmmm…..looks a lot like an Ohio homeowners insurance policy doesn’t it? Truthfully, the two policies are very similar, with some exceptions.
The Bare Walls concept directly impacts Coverage A. Broad Form concept impacts Coverage C.
Most condo policies include a small amount of Coverage A automatically- $1,000 is common. With the bare walls concept, you’re responsible for insuring your Unit. Depending on how your Unit is defined will determine how much Coverage A you need.
For example, if your Unit is defined as “drywall inward”, you may need a Coverage A amount of $30,000-40,000 to cover cabinets, counter tops and other items that are attached to the walls.
If your agreement is Broad Form, then you are responsible for insuring your personal property, which is Coverage C. You get to set the amount of coverage you need. Perhaps that’s $25,000 or even $100,000. But that number is dependent on how much “stuff’ you need to insure. And if you ever question what is considered Coverage C, I always offer this example: Imagine turning your condo upside down. Whatever falls out is personal property.
The moral of the story
It’s SUPER important to know which agreement you’re signing and how it works. Only then will you know the correct way to insure both the structure and your personal property. You don’t want to find out at claim time you have the wrong coverage!