The coverage difference is due to a key aspect of insurance, which says you must have a financial interest in something in order to benefit financially from a loss.
Simply put, as a condo owner, you do not own the building you live in. Therefore an insurance company would not pay you in the event the building was damaged. It would be like buying a car insurance policy for your neighbor’s car.
You can’t be sure you are purchasing the correct type of condo unit owners insurance policy until you know what type of policy the condo association has in place to insure the building you reside in. The condo association will already have a Master Policy in place, and it will dictate what property you are responsible for insuring.
What is a Master Policy?
The Master Policy is the condo association’s policy. It will detail exactly where the condo association’s coverage ends and where yours should begin. It is absolutely necessary for you to understand this before you purchase coverage.
You will see one of the following policy types:
1. “Bare Walls” – This type of master policy DOES NOT include coverage for anything inside of, or attached to, the physical walls of the condo. With a bare wall Master Policy, you are responsible for everything other than the walls and the building. This means you would need coverage for damage to any appliances, carpet, plumbing, wiring, interior (and possible exterior) fixtures and cabinets.
2. “Single Entity” – This type of Master Policy is more comprehensive than the bare wall option. The condo association’s policy will not only cover the building and walls, but also the carpet, appliances and cabinets. Of course, you’re still responsible for your personal property.
Tip: There are some insurers whose condo policy will automatically “adjust” to whatever the Master Policy requires. However, you would still need to know which you have, as this will help you purchase the right amount of coverage.
Again, it is important you know exactly what type of Master Policy is in place prior to choosing which type of condo insurance policy you need to purchase. Failing to do your research and “taking a guess” could cost you a lot of money in the event of a property damage claim.
What Does the Condo Unit Owners Policy Cover?
There are a couple of major coverage types available for the condo unit owner’s policy. They mostly mimic the homeowner’s insurance policy, again, with the exception of coverage for the actual building itself.
Personal Property – This is your “stuff.” You need to carefully evaluate the replacement cost of everything you own in order to choose the correct coverage limit for this section of the policy. This is also where you would need to consider if you are responsible for appliances, cabinets, carpet and fixtures. You will certainly want to have limits high enough to replace or repair your personal property as well as any additional items not covered by your association’s Master Policy.
Personal Liability – Liability coverage would be triggered in the event you are sued for negligence that results in bodily injury or property damage to others. A Master Policy will not contain coverage for your negligent acts. For example, if someone slipped-and-fell in your unit, you could be sued in order for that individual to collect damages. Experts recommend you purchase at least $300,000 in personal liability coverage.
Medical Payments – This is a no-fault type of medical coverage that would pay a small benefit to an individual who was injured on your property. There are no lawsuits involved here and the policy limits for this type of incident rarely exceed $10,000.
Loss Of Use – This coverage is designed to pay for your additional expenses in the event you are not able to occupy your unit due to a covered loss. For example, you might have to stay in a hotel for an extended period of time if your unit was destroyed by a fire. The limits for this coverage may be expressed as a dollar or time limit. You might have a policy that offers up to $20,000 in coverage or one that may provide 12 months worth of expenses.
There can be a number of additional coverage possibilities available beyond the basics listed above, so speak to your insurance agent or insurer to determine what your options are.
Tip: You should always obtain coverage for water back-up. It is not necessarily included on these types of policies. If your property is damaged by water from a backed up sewer or drain, you would have no coverage without this endorsement.
Something to Consider
Not all policies are created equal. Simply reviewing the coverage limits and overall cost of a policy may not be enough to ensure your policy is adequate to properly insure you.
You must also seriously consider the types of perils you’re property is insured against. After all, having the highest coverage limits at the cheapest price doesn’t mean squat if your claim is denied because you weren’t insured against a certain event that damaged your property.
The difference lies in whether or not you have a “named perils” or “all perils” coverage form.
Put simply, you want the all perils policy. This type of policy will cover damage to your property that results from “any direct physical damage that is not specifically excluded.” Basically, you are insured against any possible reason for damage, rather than just a few perils the insurer will cover.
The named perils option doesn’t have any exclusions because it doesn’t need them. If the damage to your property is not caused by an insured peril, it’s simply not covered.