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.