I had an interesting conversation last week with a Dallas area mortgage professional about condo insurance. He was working on his client’s loan and had several questions about coverage, which I thought would be useful in guiding a blog post for those who own, or are considering buying a condo.
Coverage: His first question was to confirm what a condo policy covers. There are two property areas most condo insurance addresses, the finish out of the condominium and the owner’s personal property.
The finish out amount should be enough to rebuild the condo if there were a total loss such as a fire. Since most condo association policies cover the physical structure, studs out and common areas, the condo owner’s policy covers the sheetrock in. This includes the sheetrock and what covers it (designs, specialty paint, paneling, etc.), electrical plugs, light fixtures, ceiling fans, cabinetry, floor coverings, and plumbing fixtures.
In addition to the condo’s finish out, the amount of personal property, or contents, coverage should be enough to replace everything the owner moves into their home. This includes furniture, electronics, clothing, dishes, appliances, etc.
There is one exception to this. I work with a couple of small associations whose policy covers the entire building including the condo finish out. In this case, the only property the owner needs to cover is their personal property as the association covers the entire physical structure.
Coverage Itemization: Some insurance companies show a single number for both the finish out, or replacement cost of the home, and the owner’s personal property. Other companies show these amounts separately. Whenever I work with a mortgage professional, I confirm how these are represented and when combined, how much is earmarked for the home and how much for the owner’s personal property.
Claims: The condo my friend was working on, had a claim against the association, so he wanted to know if this would impact his client’s rate. Whether it impacts the buyer’s rate is largely up to each insurance company, however, most of the ones I work with are only concerned about claims specific to the condo the owner is buying or owns. Those may or may not impact the rate as most companies only concern themselves with the buyer’s claims if this is a new purchase, or the owner’s prior claims if they are considering moving insurance to one of my carriers.
Optional Coverage: Lastly, the mortgage loan originator was curious about optional coverage the buyer was examining. Like most home insurance policies, condo insurance comes with a variety of optional coverage including personal liability, medical coverage for people who visit, water options, glass coverage, and much more. The one option I always recommend is loss assessment coverage which protects the owner against an association assessment for a major claim such as a fire or large hail claim. This option is very nice and protects the owner against having a major outlay of cash to satisfy an assessment.
I love good questions and a fun discussion about insurance. Our discussion helped the loan officer better understand the policy his buyer has chosen and that it meets their underwriting guidelines. What questions do you have? Share your questions, comments, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!