Condo Insurance Is a Must-Have

Years ago, when I lived in an apartment, I decided to install a water filter onto my kitchen sink. I figured a could save the cost of paying a plumber to do what I could do myself. After all, I’m pretty handy when it comes to home maintenance. So, I hit up the home depot for a nice water filter, Rodman’s for a nice bottle of wine (a red blend), and then went back home to do my Ask This Old House thing.

Two glasses in, I’ve got the filter installed, Damian Marley & Nas playing in the background, and my filtered water is flowing beautifully and tastes like purity. Another home installation in the books…

Feeling a sense of accomplishment, I go to bed that night and fall into a deep satisfying slumber. At 3:45am, I’m jolted out of my sleep and bounce from my bed by crazy hard and loud banging on my apartment door. I walk out of my room and as soon as I hit my corridor leading to my apartment door, I walk onto water squishing beneath my feet, and the first words out of my mouth are “Oh Sh**!” because in that millisecond, I knew exactly what happened. My home improvement project went left. I opened my apartment door to find 4 firefighters standing there, and one of them holding an axe. The expression on their faces had a single question; what did you do? I lead them to the water filter and it’s gushing like I just struck oil in Texas. They shut the water down, and then proceed to tell me about the damage I caused. This in addition to the inch+ of water covering the floors of my kitchen, living room, hall corridor, and working its way to my bedroom. It’s not pretty.

Traumatized by it all, the next day, I speed-dial my guys at DH Stevens Plumbing to double-time it to my place and fix my water filter. They arrive and in 15 minutes, the filter is professionally installed, and I get a plumbing lesson…Turns out I neglected to install the $1.15 cent rubber washer, which ended up costing me roughly $15,000 in out-of-pocket damages.

I had to pay for mitigation, my neighbor’s damages under me, the common area repairs, the building’s plumber, a building fine, and my own repairs and floor replacement. And guess what…I didn’t have insurance.

So, years later when I bought my condo, I was already ahead of the game, and all-over an HO6 insurance policy for my condo. And I even required my tenant to have insurance (HO4) as well when I decided to rent out my condo.

Many condo owners mistakenly assume that because the condominium building is insured, the owner’s home and all their personal items inside it are also insured. Not only are they wrong, but they are also at risk should they cause damage or suffer damage from their neighbors. They also wrongly assume that the association’s master insurance policy is all the coverage they need. The master policy only covers the building, not your personal belongings, or any upgrades you’ve made to your unit. For example, upgraded flooring, new cabinets or appliances, or renovations are generally not covered by the master policy. Neither does it cover parts of the building that are used only by you—like the balcony or the pipes that feed into your unit from the main pipes. I know so many condo owners, who’ve had experiences just like mine above, or much, much worse.

All residents (owners and tenants) need their own insurance for the insides of their units, their belongings, and any damage that might be caused by something within your unit (such as a leaking toilet). In a few rare cases where coverage is provided under the master policy, you will still be responsible for the deductible. And with leaks being a huge issue in multifamily living, associations are increasing their master policy deductibles substantially.

To have your personal belongings and any deductibles covered, you need to invest in a condominium owner’s insurance policy, available from most carriers. These policies are generally inexpensive and are very well worth it! Be sure to ask about water or sewer backup coverage. Sewer backups are not unheard of, and a standard policy won’t cover the damage to your unit without a sewer backup rider.

There are several different homeowner policies to explore, but for the purposes of this article, let’s narrow our review to the ones that matter most here:

HO-6 Insurance Policy
Condos are not apartments, but also are not houses either. This type of policy is designed specifically for condo owners and financially protects belongings, personal liability, damage to unit structure, additional living expenses, and more depending on the policy you choose.
An HO-6 policy, also known as condo insurance, also typically extends to the walls, floors, and ceiling of the unit too. The same incidents covered under a typical homeowner’s insurance policy generally apply to HO-6 coverage too. Outside of this the other condo's structure is usually covered by a master policy purchased by the condo association.

HO-4 Insurance Policy
This policy type is specifically for renters, as it covers only your belongings and personal liability not the building structure (or unit structure depending), which the landlord buys insurance for. Belongings are typically covered against the same perils as a HO-2 homeowners insurance policy. An HO-4 policy, usually referred to as renter’s insurance, will also typically cover additional living expenses should you need to stay elsewhere temporarily while your apartment is being repaired. If you are a condo owner renting out your condo, it is imperative that you incorporate language in your lease to require your tenant to have a HO-4 insurance policy.

If you have an incident and your tenant is displaced, they will look to you for compensation for hotel stay, damage to their personal items, travel and incidental costs, and the reimbursement of some $25.62 home item that is all of a sudden a collector’s item that they value at $2,500. I’ve seen this play out with our clients many times.

If you have any questions regarding what type of coverage you need, please contact an insurance agent. It is also a good idea to talk with the association’s agent who should also be very familiar with the type of coverage condominium owners need and can help you avoid double coverage or gaps in coverage between your personal insurance and the association’s master policy.

Ending on a positive note, the good news is that with the guidance of professional property management, many condo associations are putting several effective measures in place to get ahead of and prevent leaks and floods. And there are preventive measures that you can take as well…

• Get an HO6 condo insurance policy. Make sure you know what your association’s deductible and limits are so that you have adequate coverage up to that deductible. If you don’t know, ask for a copy of the association’s COI (Certificate of Insurance), and call the association’s agent to confirm the deductible and limits. BE SURE. Because if you’re not, you may be coming out of pocket to pay for some serious expenses if you’re impacted by an incident.
• Require your tenant to obtain and carry an active HO4 insurance policy, and check it annually to make sure there is no lapse in coverage.
• Get an annual plumbing inspection by a reputable licensed and insured plumber. Items checked should include Kitchen, bathrooms, bidet toilets, dishwasher, refrigerator ice-maker lines, washrooms, bar area, clothes washers and drains, HVAC, window AC, boiler, hot water heater, and any other place that has a water line and drain.
• Purchase and install a HVAC/Air Conditioner Condensate Pan Overflow Alarm. Preferably one that can alert you via your mobile phone when you are away from the home.
• Turn off the water in your home when you leave town, leave the country, or plan to leave the home empty for a long period of time.
• Provide a copy of your keys with a family member, trusted friend or neighbor for emergency access to your unit when you are away.

All that said, condos remain an excellent investment, and CondoLife is Awesome!