THE “NUTS AND BOLTS” OF THE UNIT OWNER POLICY
Written by Rich Bouvier
Rich currently serves as Secretary of the CAI-CT Board of Directors and Chairs the Golf Committee.
He is also a frequent speaker at CAI-CT education seminars.
Since the average premium for a well-written Condominium Unit Owners Policy usually runs between $250 and $350 per year, it is certainly worth the extra effort to take a close look at the available coverages and be certain you purchased the coverage that best suits your needs. Important policy enhancements can cost as little as $9 per year and many are not automatically included on the standard “Condominium Unit Owners Policy” also known as the HO-6 policy. Furthermore, if you are an investor and rent your unit, you too can purchase a comprehensive policy to cover your interests as a landlord under the “Dwelling Fire Policy” form.
Despite the low premiums, there are many line items to take into consideration. Fortunately, there is an order to these policies, and we can touch upon each section.
Condominium Unit Owner Policies are broken into two parts:
- Section 1 — Property Coverages, and
- Section 2 — Liability Coverages.
Starting with “Coverage A – Dwelling Coverage,” this refers to the physical coverage to your unit. With the July 2010 changes to the Common Interest Ownership Act (CIOA) in the State of Connecticut, the amount of physical dwelling coverage each unit owner may be responsible for has changed. In a previous article, I have explained what “All In” master policies cover and how unit owner purchased and installed improvements such as flooring upgrades or the increased cost of construction of a recently renovated kitchen are now covered by the master policy.
This major change may allow some unit owners to reduce the amount of dwelling coverage they need to carry.
While I would never recommend to remove this coverage altogether, I have tried to recommend an appropriate amount of coverage that is reasonably priced and would afford worthwhile coverage in situations where unit owners could be held responsible for certain costs related to covered losses. My recommended dwelling coverage amount is $25,000, but this amount may vary depending on the details of your association’s governing documents and the master policy specifics. Please keep in mind that if your association has formally “Opted Out” of the “All In” coverage requirement, you should consult your board of directors or property manager to verify what your insurance obligations are to your unit.
Aside from purchasing the correct amount of dwelling coverage, there are endorsements available at low cost to enhance this coverage. For an additional premium many insurance providers allow you to expand the “Perils Insured Against.” This may be referred to as “All Risk” or “Open Peril” coverage, but keep in mind, this may vary between insurance providers.
The next line item under the Property Coverage section is “Coverage C – Personal Property.” This coverage refers to the contents of your condominium unit. This may be your clothing, furniture, televisions, computers, etc. The amount of coverage to be purchased is truly up to the individual unit owner. There isn’t an easy formula to determine a proper amount of coverage, but taking an hour to review your entire unit and estimating replacement costs for your personal property will help you decide to purchase $50,000 or $250,000 worth of coverage and be sure to request “Guaranteed Replacement Cost” coverage on your personal property. Keep in mind, there are coverage limitations on many items. These are usually items of unique or fluctuating value such as gold, jewelry, antiques, fine arts, silverware, firearms or oriental rugs. In order to purchase proper coverage, discuss these items with your insurance agent. Some insurance companies may require current professional appraisals to add such items onto your policy for an additional premium.
If you cannot live in your unit due to a covered loss, you may face the expenses for temporary housing. These are examples of costs covered under “Coverage D – Loss of Use.” Under the usual HO-6 policy, this coverage is typically 20% of the Personal Property cover-age limit, but you can increase this coverage limit upon request for an additional premium.
Section 2 – Liability Coverages consist of two line items:
• Coverage E – Personal Liability, and
• Coverage F – Medical Payments to Others.
With most HO-6 policies, “Coverage E – Personal Liability” will be available at coverage limits of $100,000, $300,000 and $500,000. There are a handful of insurance companies that can offer this coverage up to $1,000,000. My recommendation is to purchase as much Personal Liability coverage that you can afford. We see most unit owners purchase $300,000 or $500,000 of Personal Liability and if you were to do a cost comparison between the two amounts, it is usually a very small increase in premium to have the higher amount of coverage. This coverage is to provide protection to you for a claim or suit made against you for “bodily injury” or “property damage.” Be certain to read your policy form language to fully understand what “bodily injury” and “property damage” occurrences are. This coverage can also be supplement- ed with a Personal Umbrella policy. The
best advice is to ask your insurance agent what Personal Liability coverage is available and to make the final decision with the guidance of your agent based upon your own liability exposures and concerns.
“Coverage F – Medical Payments to Others” is an included coverage under the HO-6 policy. The usual included amount is $1,000, as with most coverage, this can be increased for an additional premium. To briefly summarize this coverage, it will pay the reasonable medical expenses for those invited onto the insured premises as well as coverage off premises for specific circumstances when those covered have sustained a ‘bodily injury.’ This coverage does not apply to you, the unit owner, or regular residents of the condominium unit. Common examples of Medical Payments to Others include: medical, surgical, x-ray, dental, ambulance, hospital and funeral expense up to the specified policy limit. There are coverage limitations as to who is covered, where coverage applies and for
how long coverage is avail-able after the date of loss. Albeit small, this is a useful coverage and increasing your coverage limit to $5,000 or more, where available, is not a costly coverage enhancement.
Included under the “Additional Coverages” of both Section 1 – Property Coverages and Section 2 – Liability Coverages of the HO-6 policy you will find Loss Assessment coverage. This is a small, yet important item included with the HO-6 policy at $1,000 and increasable at an additional premium. Keep in mind that
Loss Assessment coverage can apply to both property related losses as well as liability related losses. For Loss Assessment coverage to apply, there are required coverage triggers and I highly recommend that you review these items under the policy sections mentioned above and be sure to call your insurance agent for clarification.
As for other available coverages the list is long. Two common additional coverages are Sump Pump Failure / Water Back Up Coverage and Identity Theft coverage. The limits and details of these coverages vary from insurance company to insurance company. From my experience they are usually available, relatively inexpensive and it is worth the extra few minutes to discuss them with your insurance agent to see if you can benefit from them as part of your condominium unit owners policy.
As with all insurance policies, the initial task of obtaining one can seem a bit overwhelming, but with the assistance of a professional insurance agent, purchasing proper coverage for your individual needs can be a straightforward task. In light of the relative low-cost for a well-written unit owner policy, it is certainly worth the effort to enhance your policy to truly protect yourself.