THURSDAY, FEBRUARY 16, 2017
Condo ownership is becoming very popular. 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.
If you fall in one of these two categories or are looking to buy a condo for other reasons, this post will be very helpful for you. I explain the difference between condo insurance and home insurance, plus discuss two typical condo agreements and how insurance responds to those agreements. It's organized as easy to read Questions and Answers (designated by Q and A).
Q. How is condo insurance different from home insurance?
A. The main difference lies in what part of the building you own and what part you are responsible for insuring. A typical home 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.
Q. What types of condo agreements are there?
Here's the two most common.....
A. - 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
Q. What do the Bare Walls and Broad Form Concept condo agreements actually mean?
A. 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.
Next- Broad Form. The agreement states the association is responsible for insuring all building items. The Unit Owner is responsible for insuring personal property only.
Q. How do the Bare Walls and Broad Form Concept condo agreements apply to condo insurance?
A. A typical condo policy looks like this:
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 a homeowners insurance policy doesn't it? Truthfully, the two policies are very similar with few exceptions. But that's the subject of Part 2 of this series (so be sure to read it!).
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 $20,000 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.
Due to condo living's increasing popularity it's important to know how the different agreements impact your condo insurance coverage. Read Part 2 of this series- it discusses the differences between the home insurance policy and condo insurance policy- and there are differences you need to know about! You want to make sure you have the proper coverage to properly protect you in the event of an individual claim or condo association claim. And we're here to help you navigate and explain the differences.
If you have any questions about your condo insurance, please give us a call at (937) 592-4871 or visit our devoted condo page. You can also request a quote quickly and easily on our website.
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