There is a common misconception that when you buy a Condo or Town-home the insurance is “included” in the HOA dues. While there is some truth to this it’s not 100% accurate and could leave you in a bad position should a claim occur.
Most of the time the Homeowners Association (HOA) provides what is called a master policy. A master policy typically includes property and liability coverage for the common areas and property. This would include things such as the parking lot, any amenities (pool, workout center, etc.), fences and signage. In most cases, the master policy will also cover the building.
Right now, you may be thinking, it covers the building and that is all you care about. Your definition of building and the master policy definition of building are probably different. In most situations, the HOA is not responsible for the interior of your unit. This means that if there were damage to your building such as a fire or a tornado, the master policy would pay to re-build the building but what it would not cover is the finish out. Therefore, your home would be rebuilt but it would literally be studs and a shell. You are responsible for the drywall, texture, electrical, plumbing, and all the fixtures. Your belongings and personal property are also excluded under the master policy. Imagine something happens to the building and you lose everything. Would you be able to replace all your belongings and pay to finish out the unit without insurance?
Now that you understand why it’s important to have your own insurance to cover your condo or town-home, let’s talk about what kind of coverage you need.
Coverage for the finish out/building: In the North Texas region finish out costs on a 1,000 square feet space would cost a minimum of $60,000 and often closer to $100,000. That’s a lot of money to pay out of your own pocket. Make sure you have enough coverage to pay to rebuild the interior of your unit (studs in) should something happen.
Personal Property Coverage: Personal Property provides coverage for your personal belongings should something happen. I often say personal property is anything that would fall out if you took your house, turned it upside down and shook it. There are special limits on items such as jewelry and firearms. If you own either of these, you want to talk to your agent about scheduling them. Make sure you buy enough coverage to replace your property.
Liability coverage: Coverage to protect you personally should you be held liable for damage or injury due to your negligence. The master policy also does not cover any personal liability for you or your family members. If you were to have guests visit you at your unit and an incident were to happen that you are held personally liable for, there is no coverage under the master policy. An example of something you could be held liable for would be a contractor you hired is over fixing something in your unit, and that contractor gets hurt due to your negligence, you would have no coverage.
Loss Assessment: Even if something is covered by the master policy it could result in an assessment being charged to the unit owners. For example, a hailstorm comes through and causes damage to the roof of the complex. The HOA has a large deductible and does not have the money on hand to cover it. Therefore, each unit owner is charged $2,500 for their portion of the deductible. Loss assessment provides coverage for assessments charged that would normally be covered under insurance.
This is a brief guide to Condo Insurance policies. You should always read your master policy, so you know exactly what is covered (there are some that exclude the entire structure, in that case you need to purchase a homeowner’s insurance policy). You also want to discuss your insurance options with a licensed insurance agent.
Hanby Insurance is always here to answer your questions. If there is anything we can do for you, please let us know.