Is Your Condo Covered? Homeowner Association vs. Owner Insurance: Know what’s Covered Before You Buy!

I've seen a number of critical errors homeowners make when buying a condominium.  In some cases, owners had NO insurance when a major water loss occurred in the building, leaving them with no protection or ability to recover the expenses associated with the loss.  

Condominium owners should have a definite understanding of the insurance provided by their condominium and what insurance they need to purchase to protect their home.  It’s always a good idea to be prepared before your purchase, so read your condominium documents ahead of time (at least the section on insurance) and obtain a copy of the building’s certificate of insurance from your property manager. Ask your insurance agent to review both in order to provide you with the right advice for your needs.   It’s also a good idea to ask the  association how many claims it’s made in the past two years.  Excessive claims may mean higher insurance premiums for the association – and who pays those?   The owners do with their monthly dues.

In 2008, Georgia law set forth the types and amounts of insurance that a condominium association is required to obtain.  The result was HB 1121 which amends the statute to expressly require that the association insure all portions of each building which are common elements (including limited common elements), all foundations, roofs, exterior walls, including windows and doors and the framing thereof, and all of the following items, regardless of who is responsible for maintaining them under the condominium instruments: (a) the HVAC system serving the condominium unit; (b) all Sheetrock and plaster board apprising the walls and ceilings of the condominium unit; and (c) the following items within the unit of the type and quality originally installed: floors and subfloors, walls, ceilings and floor coverings, plumbing and electrical lines and fixtures, built-in cabinetry and fixtures, and appliances used for refrigeration, cooking, dishwashing and
laundry.

Unit owners are only to be responsible for insuring betterments and improvements made to the interior of a unit.

What is a Betterment and Improvement?

As an example, imagine a unit is damaged in a small fire. The damage is contained to the unit. The fire started in the stove and spread to the counter and a section of the floor.  The stove is the original appliance.  The units were originally built and sold with laminate counter-tops and vinyl flooring. At the time of the fire, the counter-tops were upgraded to granite and the floor was upgraded to hardwoods by the owner.

HB1121 requires the insurer to pay the full replacement cost, subject to any deductible, for the original stove, the value of laminate counter-tops and the value of the vinyl flooring. If the granite and hardwoods cost more than the laminate and vinyl, the unit owner will be responsible for the difference in cost because
those are betterments and improvements.

What Type of Insurance Should an Owner Purchase?

Typically, an owner should purchase an HO-6, Condominium Unit Owner’s Insurance Policy to cover furnishings and other personal property within your unit.  Also it provides liability coverage for bodily injury or property damage occurring within a Unit.  Highlights include:   

Covers Alterations, appliances, fixtures and improvements made by the Unit Owner.  Covers Personal Property Owned or used by Unit Owner anywhere in the world.

Covers Personal Property of Others, including guests, while inside of the Unit
occupied by Owner.

Usually provides some level of Additional Living Expense if the Unit is unfit to live
due to a covered cause of loss.

Loss Assessment, usually up to $1,000, for the Unit Owner’s share of loss assessment by association. 

Provides Liability coverage for a covered bodily injury or physical damage claim as well as defense costs.  Provides immediate reimbursement for small injuries to guests in your Unit.  Does not apply to resident members of the family.

Of course, you should contact your insurance broker to obtain information that is appropriate for your own circumstance.   Insurance for the community and the individual owner are an important investment. Policies should be reviewed to ensure that proper coverage is in place in the event of a loss. The investment of time and money in adequately obtaining the proper insurance is coverage will pay dividends for years to come in the form of peace of mind and adequate property protection.

Written by Lisa Simmons Weibel, President of Beacon Management Services

Beacon Management Services is a comprehensive real estate company that provides management to High Rise Condominiums, Mixed Use Developments, Masterplanned Communities and other Properties of Distinction in Atlanta and througout the Southeast.    www.beaconmanagementservices.com