What Condo Owners Need to Know About Condo Master Insurance

What Condo Owners Need to Know About Condo Master Insurance

18:27 19 July 2021

Condo owners sometimes find themselves in a difficult position when it comes to insurance. Some policies cover the buildings themselves and common areas but fail to provide coverage for individual condominiums. Others operate more like rental insurance, protecting the belongings within a condo at the cost of the condo owner.

 

Increasingly, though, condo owners and associations are opting for a better alternative. They're taking out all-in condo master insurance policies. Read on to find out everything that condo owners need to know about how this type of insurance policy works.

 

What Is Covered by a Traditional Condo Insurance Policy?

Condo associations, run by individual unit owners, are responsible for securing insurance coverage for the building. In most cases, the condo association collects monthly dues to pay for insurance. 

 

There are several types of coverage for a condo association, and each of them covers different things. Just about every policy covers:

 

• The condo structures

• The grounds

• The common areas

 

What's viewed as a common area varies from one policy to the next. In some cases, shared walls between different units are considered common areas. In most cases, so are exterior features.

 

Types of Master Condo Insurance Policies

There are four main types of condo master insurance policies. The condo association will have to decide what level of coverage to offer before taking out a new policy. They can choose from:

 

Bare Walls Policies

Bare walls master condo insurance policies provide only limited protection. They cover only the condo's physical structure, including the materials used to construct and maintain the units. 

 

Bare walls policies don't cover anything in individual units, which means each condo owner will also need to take out a policy that covers interior walls, fixtures, floors, appliances, and personal possessions. This type of policy can also be referred to as a studs-out policy.

 

Per Original Specifications Policies

This type of single-entity insurance policy covers all real property, including the fixtures, finishes, flooring, and appliances originally installed in each unit. It only covers original fixtures, though, which means if owners make upgrades at their own expense, they won't be covered. Similarly, since only the building itself as constructed by the original builder is covered by a single-entity policy, the condo owners' belongings will not be protected.

 

All-In Policies

All-in master condo insurance policies are the most comprehensive, by far. They cover all of the areas and materials described above, but also offer protection for each unit's structural elements and fixtures. Both built-in appliances and upgrades or improvements made to the unit by owners will be covered.

 

The good thing about all-in condo insurance policies is that they significantly reduce the burden on individual unit owners to take out additional coverage against property damage. Everything in the covered units can be replaced under these comprehensive policies. The only additional coverage individual unit owners need to worry about is protection for their personal belongings.

 

Types of Protections Afforded by Condo Master Insurance Policies

Condo master insurance policies offer the best of both worlds in that they provide a mix of liability and property protection. In all of the above-listed policies, common areas will be protected against damage from covered perils like fire, wind, and vandalism.

 

In terms of liability coverage, a condo master insurance policy will protect the association from many types of liability suits. If a guest slips and falls in a stairway, for instance, the policy will pay for legal fees and settlements. However, accidents and personal injuries that occur inside of individual units will not be covered.

 

Limits on Coverage

Every type of insurance policy has limits, and condo master insurance is no exception. When the association has exhausted its coverage, the unit owners will generally be responsible for paying at least a portion of additional expenses out of pocket. Condo association members should make a point of discussing coverage limits with their insurance agents prior to taking out a policy.

 

Limits on Covered Perils

Every insurance policy is a little different, so it's always best to discuss specific terms with the insurance agent. However, most condo master insurance policies will cover, at a minimum, the following perils:

 

• Fire damage

• Vandalism

• Wind damage

• Medical coverage for liability claims

• Legal fees for liability claims

 

Use the Condo Master Insurance Policy to Determine Individual Needs

Even if condo owners have purchased units in established buildings that already have condo master insurance policies, they should still familiarize themselves with the association's coverage decisions. Each individual unit owner should still take out personal condo insurance, but some will need more coverage than others.

 

Things like personal possessions are never covered in master insurance policies. Individual unit owners are always responsible for purchasing their own liability insurance, as well. Mortgage lenders almost always require borrowers to purchase HO-6 policies.

 

The type of personal condo insurance required will vary depending on whether the association has purchased bare walls or all-in coverage, or something in between. Unit owners will need to see what's covered in terms of fixtures, appliances, remodels, and updates. Knowing what the condo association's insurance policy already covers will make it easier to avoid unnecessary expenses when it comes time to take out a personal condo policy.

 

Update Policies Every Year

Most experts recommend that condo associations update their condo master insurance policies annually. One or more representatives should plan to meet with the insurance agent to discuss any changes that have occurred within the building in the past year, including repairs or upgrades. If a condo association makes upgrades to common areas that exceed its insurance coverage, the residents may wind up having to pay for repairs out-of-pocket should extensive damage occur.

 

The Bottom Line

Still confused about condo master insurance and what it covers? The best thing to do is to schedule a consultation with a local insurance agent who specializes in working with condo associations. Make a list of questions, get clear answers, and review the entire policy with the agent before anyone signs on the dotted line, then make a copy of the policy available to all unit owners.