Condos, Townhomes, Row Houses and Attached Homes- Oh My! There are many names for exposures that may seem similar but can have some very different insurance needs. There are six main reasons why
these risks are difficult to insure properly:
- Insuring space vs. owning land- Generally, if the exposure is to insure the living space and not the land, then the risk should be written on an HO-6 form. When the insured owns the land also and there is a firewall between the insured's property and the neighbor(s), these are generally written on the HO-3 form. Either way, insuring them with the proper amount of dwelling coverage (Cov A) is key here.
- Is there a Homeowners Association? If there is a HO Association, it is imperative that the agent reviews the Covenants, Conditions & Restrictions (CC & R's) of the association and master association policy. These will tell you what the insured is responsible to insure. This is especially important if you have a client that has owned the condo for some time. The master policies written to insure the buildings and common areas have changed dramatically over the years. Associations have switched to large deductibles and less coverage to make the amount that the association has to pay for insurance more affordable. The individual unit owner must be sure to fill in any gaps in coverage with their own policy. The other issue for your client (if you have an opportunity to counsel them before they purchase) is the solvency of the association. With the economy being depressed the past few years, insolvency of associations have grown. Owners not paying dues, associations being mismanaged and aging buildings requiring maintenance have all contributed to the problem. Before your client signs on the dotted line, they need to see some audited financial statements to see how good of a deal the home really is!
- How much dwelling coverage is needed? How often have I seen a lot of confusion regarding how much dwelling coverage is adequate? More often than not, clients are required to insure from the "studs" in. (Remember the CC&R discussion earlier?) All of the drywall, wall coverings (including the $200 per roll grasscloth wallpaper), cabinets, plumbing fixtures, floor covering and lighting fixtures need dwelling coverage. You need to determine an amount per square foot determined by the quality of the surfaces being used. This coverage is definitely not one size fits all.
- A tale of two Loss Assessments. There are two main types of loss assessments that could be faced by this type of homeowner. The first is generally insurable. If there is a covered loss, fire damage to a building for example; the insured could be responsible to pay his share of the association master policy deductible (which could be thousands of dollars.) Again, the CC&R's should include information on this. The other type of assessment that is more difficult to get insurance for is a "maintenance type" loss assessment. Let's say it's time to replace the roofs of all the buildings in the association. There may not be enough money in the HO association bank account to be able to pay for this, so individual unit owners can be assessed to pay the difference. Not every carrier has this type of loss assessment available so you need to make your client aware of this exposure.
- Some exposures are tough to insure. The main ones that come to mind are Earthquake Loss Assessment and Earthquake Sprinkler Leakage (EQSL). These are coverage's that can be difficult for an individual unit owner to obtain. If available- are you offering them?
- Increased Liability Exposure. Stuff happens. If your client leaves the water running for too long in the bathtub and water overflows and goes down through the walls into the unit(s)below, the liability exposure can be huge! This is an exposure that you don't have with a stand alone dwelling. Be sure to give your client adequate liability limits.
I tend to believe that the Condo owner is one of the more difficult personal exposures to properly insure because there are so many variables possible. These policies tend to not get the "care" needed to write them properly due to the relatively low premium involved. I hope you'll think about what you can do to offer your clients the best coverage available.
Sharon L. Graeter, CPCU is Co-Founder and Director of Development for West Connect Insurance Solutions. She has 35 years experience in the Insurance Industry and a contract expert. If you would like to receive her e-newsletter, please sign up at
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