For the individual condominium unit owner, “What amount of insurance do I need?” is a very common question. The unit owner has to decide on several coverage amounts when purchasing an “HO-6” – a Unit Owners Homeowners Policy. This article describes various coverage limit decisions when purchasing an HO-6 (Coverages A-E).
Condominium Homeowners Coverage A is “Dwelling” coverage. In the case of a unit owner, this means any part of the building which is owned by the unit owner specified in the condominium documents. This would include any Additions or Alterations to the structure.
Effective 7/1/2010, Connecticut has a new Common Interest Ownership Act which applies to common interest communities containing more than 12 units. The Act states that the Association Master Policy will cover any buildings which share common walls or stacked units with common floors and ceilings – including Additions and Alterations (A&A). The Master Policy Coverage under the act must include any Additions and Alterations in individual units. Under the Act, the Association Board of Directors has the option to provide this “All In” coverage or to opt out of providing the coverage. If the Association BOD opts out, the individual unit owner must then obtain any desired coverage on A&A. In the opt out scenario, the individual unit owners must be supplied by the Association with an inventory of all original A&A at the original point of sale and each year thereafter. This inventory would aid the individual unit owner to determine proper coverage A limits – the value of the structural items plus any A&A. If the unit owner is responsible for insuring the A&A, it is recommended that the insurance be purchased on a Replacement Cost basis. If the Association is to insure the A&A under the “All In” coverage condition, the BOD would decide on the limit and form of coverage.
Coverage B – Appurtenant Structures – another individually owned structure such as a garage or a shed - is not typically applicable.
Coverage C is contents coverage. Contents can typically be insured on a Replacement Cost basis. The limit of coverage is determined by the unit owner’s estimate of the cost to replace all personal items owned. Certain items (money, jewelry, silverware, gold, guns, collectibles, etc.) require special treatment given policy coverage limitations for these kinds of items. These items are often targets of theft. The coverage is limited given the heightened exposure. Higher limits for these limited items may be purchased at an appropriate cost.
Coverage D – Loss of Use – coverage for expenses resulting from the inability to reside at the residence as the result of a covered claim – is an automatic percentage of the contents limit purchased – normally 20%.
Coverage E – the Personal Liability limit – is selected by the unit owner based on perceived need for liability protection. We would recommend a $300,000 limit at a minimum with the added purchase of a Personal Umbrella Policy providing an additional $1,000,000 limit or more in liability protection. PUP policies are issued in $1,000,000 increments and provide protection above all required underlying coverage – home, auto, watercraft, etc.
Finally, we recommend the purchase of the maximum limit offered by the chosen insurance company for Loss Assessment Coverage. This provides the unit owner with coverage for the owner’s pro rata share of any assessment made by the Association due to uninsured or underinsured property or liability losses. This coverage will only provide up to $1000 towards any Association insurance deductible assessed to the individual unit owner as the result of an Association claim. $50,000 Loss Assessment Coverage is the typical maximum limit available for purchase on an individual unit owner’s policy.
