Condo Hazard Insurance

If you own a condo, even if you have owned it for many years, it is a good time to check on your Hazard Insurance. What you want to note from the Insurance “Dec” Page, is the amount of the deductible. These days, relying on the Home Owner Association’s policy solely, for your Hazard Insurance needs, may not be good enough. In fact, it may not cover you at all for most of your needs, even if it once did.

A major change occurred after 9-11. The Insurance Industry, having paid out some major claims, raised their prices on HOA Insurance policies, more-so than in some other areas. In order to keep costs down and monthly condo fees stable, many Home Owner Associations drastically increased the deductible amount in the insurance policy. So you may not be as protected as you think, or even as you once were. Deductibles that were once commonly $1,000 per claim, climbed first to $2,500, then to $5,000 and in some cases as high as $10,000.

Real Estate Agents should not be telling you “You don’t need Hazard Insurance because the HOA takes care of that”. If you live in a third floor condo and stuff your washer with too many clothes and go to work and it overflows down to the condo below you, are you covered by the HOA policy? Or will you have to pay the downstairs neighbor for the damage out of your pocket? If your hot water tank blows and floods not only the downstairs neighbor, but your two next door neighbors, and the damage is $8,000 and the deductible on the HOA policy is $10,000, where does that leave you?

Here’s what you should do. Get the current “Dec” page for the HOA policy. You should be getting this annually, though you probably throw it away or stick it in a drawer. It looks like a form with lots of blocks and numbers on it and should say something like “Declaration of Insurance” (commonly known as “Dec (deck) Page”. Take that page to your insurance agent, or contact the company who provides the HOA insurance, and ask for a quote for a “supplemental policy” that covers you for the things the HOA does not cover and reduces the deductible. Get quotes for a $500 deductible and a $1,000 deductible.

Even if your Condo Association has a low deductible, you should have a supplemental policy to cover your belongings and your own negligence items, like overflowing washing machines.

While you may not need anything besides the HOA Dec Page to close escrow, that does not mean you do not need your own Hazard Insurance Policy just because it is not an escrow requirement. It never did, really. But today it is even more likely to be grossly insufficient than it was in years past.

If you are on the Board of Directors of a Home Owner Association, the Board should send a notice to owners regarding the increase in the deductible amount, along with a recommendation that they all go out and obtain their own supplemental policies. If everyone has a supplemental policy, the HOA is less at risk for claims and lawsuits. Reducing risk helps everyone keep their condo fees down. The supplemental policies of the owners should cover small claims, and the HOA Policy should be used only for fires or major incidents that affect more than just a few owners. One person’s claim on the HOA policy, instead of their own policy, increases everyone’s costs and dues.

Moving away from relying solely on the HOA policy, is in everyone’s best interest. If too many claims are filed against the HOA Policy and the insurance company “drops” you, you being the entire Association, everyone suffers.

About ARDELL

ARDELL is the Managing Broker of Sound Realty in Seattle/Kirkland. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has over 22 years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. Follow Ardell on Google+

Comments

  1. Great advice Ardell…

    You just caused me to go review our policy!

  2. Victoria says:

    My loan won’t close since my HOA does not have an adequate coverage. I talked to the insurance company and asked what I could do and they never mentioned supplemental insurance. She stated there is a Main Policy (HOA) and a Condo Policy. I can purchase a Condo Policy, however, the Condo Policy will never take place since the Main Policy does not adequately cover the frame building.
    Is the supplemental insurance different? Will it cover the frame building and the inside in the case an unfortunate event?

  3. Unless no one else has closed on a sale there in the last six months, who had a loan to process, this doesn’t seem possible. It looks very important for you to wade through this mess very quickly, but I would need a lot more detail to be of assistance. Hopefully you are talking about somewhere in the U.S.

    Email me off blog at Ardell@SoundRealty.Biz and give me your phone number so we can move quickly. Or call me.

    An HOA generally has one policy, called a Master Policy. If there is a second one, it is usually with an Earthquake carrier. So the terms you have used “main and condo” don’t fit the normal terminology and I can’t decipher the situation from the information given so far.

  4. very helpful blog it is.i really like its contain specially the points on Hazard Insurance. I recommended your blog for debtcc blog hunt.

  5. A master policy covers exterior walls and up to the inteior of the bare sheet rock and drywall of the unit’s building and common areas as named within the policy. After that, You will need to cover from the plaster and paint outward. A condo owner will want a Unit Owner’s policy commonly referred to in insurace as HO6 policy. Any other type of form policy DP or other assigned number is not specifically taking care of the unit in its “Special Form” and may exclude critical coverage. Make sure on the Unit’s Owner policy you have Special Coverage A that insured for specific losses, Icnreased Loss Assessment to the max which helps get reimbursement money back for Assessments from Associations due to a covered claim that occurred to the common areas or your own building (as if it damaged your unit but it damaged other areas and the claim would be considered covered) as it is the cheapest thing you can buy, and the cost of a $500 to $1,00 All Other Perils (AOP) deductible is usually average $30/ year difference (it takes 16.67 years to save $500 deductible difference if you set asside $30 per year).

    Hopefully this better explained the intent of the article. The average Florida Condo rebuild is $42/sq ft and can scale as high as $85 / sq ft. The difference between formica coutnertops vs. granit coutner tops to example the reason for such a wide range difference.

    So if the building goes away, who will pay to recover your nailed-in, glued-in, or soemhow attched to the walls, celings, and floors (formerly known as additions and alterations)? Look at your Codno agreement, it usually says your first responsibility is to help recover the unit. Why Unit Coverage is critical to lessen out of pocket costs.

  6. Hello, thanks for the info
    Last year the water heater broke on my condo upstairs and had damages to both my unit and my downstairs neighbour unit. My condo owner isnurance company had apid for my neighbour’s loss but did not pay for my loss citing my HOA insurance coverage.
    The loss on my unit is $4700 and since HOA insuarnce is deductible is $5000, my HOA is frocing me to pay for the loss.
    Is this valid?? Please comment

Leave a Reply