Many people who own a condo think that the commercial association policy that covers the entire condo complex covers their unit. This is a common misconception. Owners of condo units own their individual units and not the entire condo complex itself. The ownership of the condo complex is shared by all the owners/members of the condo association. From an insurance perspective, it is very important for owners of condo units to obtain their own individual insurance policy for their condo unit because the association’s policy does not provide coverage for many of the situations that a condo owner might encounter.
Common Areas vs. Individual Units
The condo complex consists of all of the common areas such as the building exterior, hallways, and shared amenities. The condo association collects monthly dues from the unit owners and uses part of these dues to purchase the “master insurance policy” that covers the common areas. The master policy does not typically provide coverage for property and areas that are not common or shared areas and property. For example, if a fire starts in a common area due to an electrical short, the master policy will cover any resulting damage up to the limits of the policy. Alternatively, if you put a pot of water on the stove to boil and accidentally forget about it and leave the house, and it starts a fire in your unit, you are liable (responsible) for all of the damage resulting from the fire. This type of fire could be isolated to your unit if the fire department arrives in time, but it could spread to other units.
Each individual condo unit is the property of the unit owner. The unit owner owns everything within the four walls of the unit. Most master policies cover common areas and the exterior walls inward, but stop at the interior walls of each unit. This means that in most cases, the interior walls, fixtures, contents, and personal property are all excluded from coverage under the association’s master policy. This is a pretty big coverage gap by itself. Additionally, there is no coverage for personal liability for individual unit owners for claims involving their individual units. This means that if someone slips and falls inside your unit, you are responsible and the master policy will not cover it.
More about Individual Units
As an owner of a condo unit, you own very specific parts of the unit. It is important to learn which parts these are so that you can obtain insurance for any parts that are not covered by the association’s master policy. In general, as a condo unit owner, you own everything within the four walls of your unit, and everything else is owned by the condo association. Within the four walls of your unit, you most likely own the interior walls, floors and ceilings, fixtures, cabinetry and countertops, and personal property. An easy way to think of personal property is if you were to turn your condo unit upside down, everything that moves or falls is personal property. You need to get coverage for personal property and everything else that’s within your four walls. This is where an individual condo unit policy is appropriate.
In general, the association is responsible for the exterior of the condo units and the association’s property, while condominium owners are responsible for the interior of their units. Similar to homeowner’s insurance, building property coverage helps protect the property you own from damage such as fire.
Condo policies are actually very inexpensive because there is no coverage needed for the actual structure of the building since that aspect is covered by the association’s master policy. Most condo policies are less than $500 per year. Condo policies provide you with coverage for interior walls, flooring and ceilings, fixtures, cabinets and countertops, appliances, furniture, personal property, and personal liability. This means that you can get coverage for those times when your dog bites someone, your kid breaks someone’s window with a baseball, or if someone slips and becomes injured while in your unit.