In every condominium and cooperative
apartment building, there is what is known as the "master insurance
policy". The legal documents governing these association require that a
certain level of
insurance coverage be obtained. When you went to buy your
unit, your lender insisted on receiving proof that there was a master policy
and that the coverage was consistent with the association's legal requirements.
But contrary to what many owners believe, the master policy
may not cover you for all of your personal loss. According to the Insurance
Information Institute, the master policy "covers the common areas that
owners share with others in the building like the roof, basement, elevator,
boiler and walkways for both liability and physical damage." If, for
example, someone trips on the stairs, the master policy will provide coverage,
and should that person file suit, the master will also cover the legal costs
incurred by the association.
If a unit is destroyed, the master policy will pay for the
restoration of the walls and the ceilings. In some cases (depending on the
insurance policy) if your appliances are damaged, the policy will reimburse you
for the cost of replacement. Keep in mind that every insurance policy contains
a deductible, and you should inquire of your association manager what that
number is.
But any improvements which you -- and even previous owners
-- made to the unit may not be covered. The insurance term is
"betterments"; if you added wallpaper, or remodeled your kitchen or
your bathroom, depending on the terms and conditions of your policy, these
upgrades may not be covered by the master.
Many owners do not understand this, and only find out when
it is too late. An unfortunate -- but typical -- situation is where an owner
inadvertently lets his/her bathtub overflow, causing water to cascade down into
all of the units below. The master policy will cover the cost to repair the
ceilings and the floors, but your valuable Oriental rug and expensive Plasma
television set that was damaged will not be covered.
You need to obtain your own individual insurance policy. In
the trade, it is referred to as an "HO-6" policy. This will give you
coverage -- subject to your own deductible -- for the betterments in your unit,
and for your personal furniture and clothing.
Depending on your own financial situation, the HO-6 policy
can also include such things as reimbursing you for monthly assessments and
alternative lodging while you are unable to reside in your unit, water and
sewer back-ups (which are all too common especially in older buildings), and
even expensive jewelry, stamp or coin collections, or fur coats.
The legal documents of many condominium associations require
that every owner obtain the HO-6 policy, and I have always strongly recommended
that every association make this a requirement.
You should be able to obtain this kind of policy through any
insurance agent. But in my opinion, the best approach is to obtain that policy
from the same carrier that issued the master policy.
Take this very common situation: a common element pipe
burst, causing major flooding damage throughout the building, including in your
unit. The condominium association files its claim against the master policy,
and you file your claim with your insurance company. However, each company points
it finger at the other one, stating that it is the obligation of the other
carrier to cover the claim. Often, when faced with this situation, I merely
tell both agents: "guys, both the master and the HO-6 policy were issued
by the same company, so why not just work it out on your own, and make sure
that both the association and the owner are properly compensated for their
losses."
If you own a condominium unit, you must learn the difference
between a unit and the common elements. Your unit consists of the area between
the four walls, and from the floor to the ceiling. Common elements include, for
example, the elevators (unless they go to specific units in which case they are
called limited common elements), the roof and the mechanical equipment that services
all of the units in the building.
But its not that simple. Pipes, for example, that serve only
your unit will most likely be considered part of your unit -- even though those
pipes go down the walls outside of your unit.
It is important that you understand these concepts. Your
association declaration will provide you with this information, but if you get
confused with the legal (and architectural) terms, consult the association's
property manager, its attorney, or even the insurance agent for your building.
It is absolutely critical for every owner to carefully read -- and reread
periodically -- these legal documents.
If you are renting your unit, you probably will not need
protection for your tenant's personal property. However, you still need coverage
in case someone gets hurt in your unit, and accordingly should still obtain the
HO-6 policy. And you should make it a requirement in your lease that your
tenants purchase "renters insurance" -- called an HO-4 policy -- so
that they too will have protection in case problems arise.
Damage to condominium units can come from many sources. The
hot water hoses in your washer can burn out. Your fireplace chimney is stuffed
up, and does not provide the necessary updraft. Or the rubber seal under your
toilet gets worn down.
One never knows when these problems occur. More importantly,
often disasters are out of your control; they are caused by your upstairs
neighbor. I am currently involved in a situation where the upstairs owner
accidentally drilled a hole in a sewer-line pipe, causing extensive damage to
the unit below.
The cost of this insurance is nominal, considering the risk
and the exposure involved. Don't wait til the fire breaks out before getting
adequate insurance coverage.
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