Condo Complexity

As the proud owner of a condominium unit, you need to understand some of the nuances in home insurance coverage that differ from owning a single-family, detached home. Because the condominium unit is part of a larger building that contains other units under the umbrella of an owners association, the homeowners insurance you purchase will need to match the ownership structure. Before buying your policy, carefully read your association’s Conditions, Covenants and Restrictions (CC&R) to understand your obligations as a condo owner.

Generally speaking, condo units are part of a building (or buildings) that contain multiple units. The owners of individual condo units only own the space within their unit, though they also have an ownership interest in the common area of the building which is shared by all owners. Collectively, the unit owners are members of an owners association that owns the common areas and is responsible for the maintenance and insurance of the areas. Unit owners, on the other hand, are only responsible for insuring their own unit. However, the separation between common areas and individually owned areas is not consistent from one association to the next, so it’s important that you understand where your building draws the line between association property and unit property.

The association’s CC&Rs describe exactly where your ownership of your unit starts and ends. In most condos, it’s known as “studs in,” which means you own everything after the studs. This places the obligation for insuring the drywall on you as the unit owner. The other common delineation is “walls in,” where the association insures the walls and you insure everything else. In either event, you must understand that all the fixtures, such as cabinets, flooring, and appliances, are your obligation to insure, so you’ll need to properly evaluate the replacement cost of these items when buying your home insurance policy.

Even though the association will insure the rest of the building on its master policy, you may still be responsible for a portion of damages in the common area if they are not covered by insurance. As a partial owner of the common areas, you can be charged a portion of an uncovered loss. This is known as a loss assessment, and many condo policies provide some coverage for these. Read your home insurance proposals to understand what type of loss assessment coverage is available to you before purchasing your policy.

In addition to the property coverages, you also need to consider personal liability as part of your condo insurance. As with other home insurance policies, condo policies will contain personal liability insurance for any third party claims others may make against you for injury or damage. It’s especially important in a condo to consider buying higher levels of liability insurance because condo units are generally adjacent to and/or on top of each other, so there’s a much greater risk of causing property damage to your neighbors. In fact, a simple water leak that would only cause damage to the floor in a single family home can cause substantial property damage to other units in a condo building. This is an example of a personal liability claim resulting in property damage, so be sure to consider the possibility of such claims and protect yourself by purchasing a sufficient limit of liability insurance.

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