Anytime you purchase a home in a condo building your lender has to have proof of 100% Replacement Value insurance carried by the HOA aka Hazard Insurance. Each HOA’s Declarations state what each community is required to carry for insurance from Hazard to D&O to Fidelity and beyond. Once the lender has sufficient proof of insurance and their needs are satisfied owners need to be concerned with their personal belongings and covering what the HOA does not.
Let’s say an HOA has an all-in policy- this means the HOA covers everything at the time of the loss including improvements in units and owners would only need to cover their personal belongings- this policy costs the HOA a lot more money than a bare walls policy.
A bare walls policy would insure everything to the drywall of a unit leaving the owner responsible to cover their unit and does not cover paint, hardwood, fixtures or similar real property meaning regardless of the reason for a loss, be it a roof leak or sewer back up, the owner’s insurance policy is responsible to make the unit whole.
Regardless of the type of insurance an HOA has, the owner pays for it one way or another- either by paying for their own HO6 or HO3 policy or by paying the HOA the increasing cost of insurance each year which eventually results in increased dues.
Now, one thing I like to tell new owners moving into an HOA and asking about insurance is to ensure they review possible coverage for content and storage as well as special assessment coverage. What does this mean? Let’s take a look at one example for each additional coverage.
Say there is water coming from a roof leak after a huge rainstorm and the water gets into your unit finished with hardwood flooring throughout. If you have to move out of your unit during remediation and store your contents off-site this is NOT covered by the HOA’s policy and the owner is responsible for any of this out-of-pocket expense. If you have storage and content coverage you may be covered and breathe easier. Be sure this added insurance will cover room and board in a hotel, too.
If your community has a $2,500 special assessment to repair a collapsed sewer or a parking deck, there is Special Assessment coverage that may be able to help. There is always a fine line to read but you may be fortunate enough to be responsible for the deductible only and they cover the rest. Can you imagine getting hit with this assessment and having the piece of mind your insurance coverage will cover the expense. If the thought of this price tag doesn’t scare you add a 0 and see what you feel then. It isn’t uncommon for communities to be hit with huge Special Assessments and the owners are responsible to pay them like their dues or the HOA may proceed with collections.
There is always more insurance you can purchase and some may think they are paying for something may never use but the day you need it the cost is all worth it. Be prepared, cover your butt and save your money, and your mind, in the process. Contact your insurance agent for more information and if they aren’t familiar with this coverage find an agent who is.
*Information is based on opinion and actual name of coverage may vary, contact your insurance agent for personalized information. This is not all inclusive of options.