Condo and Townhome Owners are not Covered by their Homeowners Association
October 19, 2015
If you live in a Condo, your Homeowners Association (HOA) almost always just covers the HOA property-not your own property or liability. The HOA property is basically just the building. Anything inside your unit is probably not covered by your HOA. The HOA has liability if the entity was sued; however, this does not cover you personally. In most cases, this is also applicable to townhome owners, but in some cases, the HOA requires each townhome to get their own separate exterior building coverage. Let's review exactly what a separate Condo owner policy covers and why every homeowner in an HOA needs their own coverage.
Interior Building Property
This covers things like your interior walls, floor coverings, cabinets, countertops or anything that your HOA policy does not specifically cover. Your HOA policy might cover some components of your interior space, such as your cabinets. However, if you replace your cabinets and countertop, the higher-cost custom improvement will not be covered. Another example of what is not covered is your window coverings, e.g., if you installed shutters. Basically, any additional features and alterations are almost never covered. Most Condo policies come with a minimal amount of interior building coverage; this is often not enough. This is why it's best to add up what it would cost to replace your interior. It's not unusual for this amount to come out to 40k or more. Your insurance can be increased to meet the coverage amount you need. If you live in a townhome and your HOA does cover your building, you will need to get a homeowners-type policy. However, in most cases, the HOA will cover the building. If this is the case, then a Condo type policy is all you would need.
This covers all your interior property, such as clothes, furniture and electronics. Basically this is anything that is not attached to the building. There are special limitations for things like Jewelry, Collectables, Computers and Firearms. If you have any special item you are concerned about and want more coverage for, you may be able to increase the coverage sub-limit, or you may be able to purchase a floater. A floater enhances the coverage on these special items and covers it for a greater amount than what your policy would. Also, the good news about personal property is that this will also cover your property off the premises, such as in your car or while you are on vacation. As with anything, special limitations may apply and all items should be discussed in detail with your agent.
If you are displaced from your condo due to a covered loss, then your additional living expenses will be picked up in your policy, subject to the coverage limitations. For a short-term situation, an adjuster may put you up in a hotel. For a longer-term situation, the adjuster may attempt to find another condo as temporary housing. Some policies cover up to a year, and others may cover up to two years. Some policies have maximum coverage limits, while others have wording that is called "actual loss sustained." If you have a cover limitation and the cost for short-term rentals is significantly more, this coverage should be increased beyond the default amount included. If you have a policy that states "Actual Loss Sustained," then there is really no cover limitation; however, you would be placed in a similar-sized condo and any living expense beyond what you normally pay will be covered. This is also the case if you have a coverage amount, but you are no longer covered if you reach the coverage limit.
It's a misconception that as a unit owner, you may be covered under your HOA's liability policy. This is only the case if the HOA is faced with a covered lawsuit. If you are personally name in a lawsuit, the HOA policy with not cover you or provide any legal defense. For example, let's say a fire started on your property that spreads to your neighbors' property. In that case, you may be responsible for covering their personal belongings and repairs. This is just one example. Even if there is an injury in the common area, they can still name you. The advantage of a liability policy is that it covers legal defense, even if you are ultimately found not to be liable. Those who have a net worth they want to protect should get an umbrella policy.
This is an extremely important coverage for those who live in an HOA. This would cover an HOA assessment due to an insurance shortfall. The HOA may not have enough coverage to cover a claim; if they levy a special insurance assessment, your policy will cover it up to the amount stated. In some cases, you may have to ask for this coverage, as it may not be automatically built into the policy. Even if it is, typically this is a minimal amount. This coverage can and should be increased to the maximum amount of coverage that they will allow-often this amount is 50k.
A Condo policy is a package that includes most or all of these coverages. However, the minimum amounts are bare bones, and that is why it's important to both add and increase coverage. If an incident occurs that affects your unit, in most cases the HOA policy will not cover you. Then you will be forced to pay out of pocket to cover a claim; in some cases it can be over 10k or even 100k. The cost of these policies in most cases is a fraction of what a homeowner's policy costs, and it covers so much-from property to liability to HOA insurance assessments.