What Type of Homeowners Insurance Should Co-op / Condo Residents Get?
April 16, 2013 — Condominium and co-op boards can require residents to carry homeowners insurance. In two earlier articles, we looked at reasons for that and at ways to help enforce that requirement. So exactly what type of homeowners insurance should they carry? There are different types, and a unit-owner or shareholder buying the wrong kind won't have all the coverage he or she might expect — and if a severe issue hits, then the board may well find itself drawn in to patch up problems and then sue to recover the damages. And that's never fun.
What exactly should boards require? Specifics are important, since "many shareholders have inadequate insurance," says James Samson, a partner in the law firm of Samson Fink & Dubow. Adds attorney Matthew J. Leeds, a partner at Ganfer & Shore, "If the deductible is too high it's almost like not having insurance, because the threshold is so hard to reach before the insurance company gets involved."
The standard nomenclature for homeowners insurance is:
• Coverage A: Dwelling (the declared value and covers direct physical damage, including to carpeting, floors, and even some elements of decor)
• Coverage B: Other Structures (such as tool sheds or detached garages, which can be pertinent to townhouse condominiums and the like)
• Coverage C: Personal Property (loss of things that aren't a permanent part of your home, such as furniture and clothing, and is generally limited to 50 to 70 percent of the "Dwelling" coverage amount; it excludes such items as fine art, jewelry, and coin collections, which can be insured by a separate "endorsement," also called a "rider" or a "floater")
• Coverage D: Loss of Use (offers reimbursement for the amount of additional living expenses incurred when one's home is uninhabitable)
• Coverage E: Personal Liability (pays for claims and legal defense arising from injury or property damage to oneself or others, whether by accident or negligence; "Medical Payments" can be a subsection of that or its own separate section)
"We had required $300,000 liability insurance," says board president Herzog, but in January, "we passed at our board meeting a rise to $500,000." He continues: "We also indicated that if you have an umbrella policy for a million, you can have that instead of the $500,000 liability insurance."
A personal umbrella policy (PUP) is a type that provides liability coverage beyond that of your automobile or homeowners policy — somewhat like the overdraft function of a checking account. "We also take the position that what you do with the rest of the insurance is your business," he adds, referring to the specific amounts for coverage other than liability.
"We recommend half-a-million [minimum liability coverage], since we are in a very litigious society," says Patricia Batih, vice president of sales and marketing at the insurance agency Mackoul & Associates.
"That would be the very bare minimum," advises Don Mayer, an account executive for the insurance brokerage the NIFC Agency (known as Northeast Insurance & Financial Consultants outside New York State). "I would write a policy with at least a million per accident, two million aggregate per year. The difference in price is minimal."
Make sure that your owners get the right type of insurance. There are several categories of "HO" (for homeowner) policies, but only two are applicable here: HO-4, which is standard rental insurance, and HO-6, which is specific to condominium and cooperative apartments.
"If it's an owner-occupied co-op or condo [unit], the policy is an HO-6," says Batih. "If it's being rented out, the person renting it should have their own HO-4, and the owner's HO-6 doesn't apply more. They should cancel the HO-6 and write a special policy — some companies call it a ‘landlord package policy' — and that'll protect the owner's interest in the [apartment] and his liability exposure. If you're subletting for a couple of months, that's different. But if you're renting it out for a year or something, you should have a landlord package policy and your renter should have an HO-4."
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