Problems With Condo Insurance

Condo insurance is used if you have a condominium, or if your HOA insures your structure through a master policy.  There are some problems that can arise from this type of insurance policy. 

Insurance companies slice up your home property pie into four pieces:

  • Main structure
  • Interior finishes
  • Personal property
  • Other structures

In a standard homeowner’s policy, the individual homeowner owns all four slices and a minimum limit on personal property is fixed.

But with condos, individual homeowners own and insure only interior finishes and personal property and they get to choose their own limit. They frequently get it wrong.

Last week I met with a new client about insuring her beautiful $1.5mm condo. I was flabbergasted to find her previous policy’s interior finishes plus personal property limit was set far too low at $70,000! That’s $70,000 to replace everything inside a $1.5mm condo…think about how much just a kitchen remodel costs!

The agent who sold her that policy was either lazy or bad. A lazy agent will throw a number out there without regard to replacement cost. A bad agent will throw a low number out there just to get a low premium for price-shoppers.

So check your interior finish and personal property limits, and decide if that’s enough to replace your entire interior finishing and personal property.

Here’s a different situation. Let’s say someone has a home where they own the main structure but the HOA provides insurance for that structure under a master policy. The owner then needs a condo policy to protect their interior finishes and personal property. When asked by an inexperienced agent if they own their home (including structure) they correctly answer yes, so the agent unthinkingly puts them in a standard homeowner’s policy instead of a condo policy and they end up paying for insurance they already have!

Now let’s say that same owner and inexperienced agent figure it out and get the right policy…the HOA covers the structure and the owner has a condo policy to cover the interior finishes and personal property. Then the owner gets nervous about earthquake or flood and asks the agent for coverage. The agent offers a very reasonable quote and the owner feels satisfied he or she is protected. Wrong!!! Earthquake and flood always follow the underlying policy form so the owner bought earthquake or flood protection on his interior finishes and personal property only, not the structure, which he owns and is most worried about!

Insurance is complicated. Make sure you have a good insurance agent and be careful out there!