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What Associations Need to Know to Assist Owners in Purchasing Condominium Insurance
Most owners of single family homes know they need homeowners insurance. Unfortunately, many owners of condominium units do not realize they need to purchase their own insurance policy until they’ve suffered a loss of property. Rather than leaving owners to discover this oversight after a loss of property has already occurred, associations may want to take a more proactive stance to help out their neighbors by informing owners of their need to purchase individual insurance and help owners determine what coverage they’ll need.
In order to protect the contents of their units, condominium owners need an individual policy known as an HO-6. When purchasing an HO-6 policy, unit owners first need to determine the extent of their association’s policy so that there are no gaps and no overlaps in coverage. Association policies come in two basic varieties: “all-in” and “bare walls.” The all-in policy covers anything that is built into the unit including the walls, floors, fixtures and cabinets. In contrast to the all-in policy, the bare walls policy coverage ends at the unit’s walls, leaving the unit owner responsible for all finished surfaces. It is important to note that there are variations of the all-in and bare walls policies and that some all-in policies have exceptions which unit owners would need to specifically compensate for when purchasing their HO-6.
Since the types of policies available to associations vary in coverage, and because the unit owner's insurance needs are dictated by what is and is not covered by the association’s policy, it is helpful for the association to provide a summary of its coverage. To do this, the association must first become knowledgeable about its insurance responsibilities and coverage. Performing an insurance audit is an ideal way for an association to learn. An insurance audit serves two purposes. First, it may be used to determine whether the association carries all the insurance that is required by the governing documents, and second, it may be used to inform owners of the limitations of the association’s coverage so the owner can purchase an adequate HO-6 policy. An insurance audit should include:
• A review of the association’s governing documents to determine the requirements for both the types and amounts of insurance coverage.
• A review of the insurance policies themselves and any related endorsements.
• A comparison of the insurance requirements provided by the governing documents and the actual policy coverage to identify any deficiencies or gaps in coverage. Once the association has performed an insurance audit, the results should be summarized and made available to the homeowners to assist them in purchasing their own private condominium insurance policy. For more information on legal audits go to Legal and Insurance Audits.
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