Understanding Your Homeowners Insurance Policy

What does the Association cover? What does your personal insurance cover? How much coverage do you need? 

A common misconception when purchasing a homeowners policy is that the Association covers the building, thus minimizing your personal risk. While this may be true in some instances, it is not always the case—and it’s important to understand this before purchasing your coverage.

Here are four key areas to review when securing the proper Homeowners Policy: Building Coverage, Personal Property Coverage, Liability, and what the Association’s (Master Policy) covers.

Dwelling (Building) Coverage

While most Condominium Associations insure the main structure of the building and grounds, the dwelling portion of coverage can vary based on individual Association Governing Documents.

We recommend familiarizing yourself with your Association’s Master Deed or Declaration, particularly the section that outlines what the Association is obligated to insure, versus what you, as a unit owner, are responsible for. Make sure you carry adequate building coverage to rebuild the portion of the building you own (according to the Association's Documents and Master Insurance Policy). 

In a condominium, this could include paint, cabinets, flooring, fixtures, and any improvements you’ve made to the unit. Lacking sufficient coverage could be devastating in the event of a major loss. In a townhome or single-family home where building coverage is not provided by the Master Policy, you’ll need to insure the building for its total cost to rebuild (Total Insured Value or TIV) in case of a loss.

Personal Property Coverage

This covers your personal belongings within the unit. There are two main types of personal property coverage: Actual Cash Value (ACV) and Replacement Cost (RC).

ACV gives you the value of lost items based on their depreciated worth, while RC covers the current cost to replace lost property. For example, if your 10-year-old couch burns in a fire, ACV would provide a fraction of its replacement cost, while RC would cover the cost to replace the couch with a similar item at today’s prices. We always recommend RC coverage.

Liability Coverage

Personal liability coverage in your homeowners policy protects you if others sustain bodily injury or property damage for which you or your family members are legally responsible. 

For example, if someone falls down your stairs or your child accidentally breaks a neighbor’s expensive vase, personal liability coverage would cover the costs. The insurance company will defend you if you’re sued and pay damages to the injured party up to your policy limit.

Most homeowners policies provide a minimum of $100,000 in personal liability coverage. If you feel you need more protection, you can increase this amount to $500,000, or even purchase an umbrella policy for additional liability coverage beyond that.

Association Master Policy

There are two main areas to focus on. First, like all insurance policies, your Association’s Master Policy will contain a deductible (which varies depending on the Association). When a loss occurs, the Association can pass that deductible on to impacted unit owners, usually through an insurance deductible resolution adopted by the board. 

For example, if a water heater bursts and damages several units, the affected owners may have to pay a portion of the Association’s deductible. Some personal unit owner policies (HO6) cover the Association’s deductible, while others do not or offer it as an optional endorsement.

Below is a non-exhaustive list of individual policy types and a brief description of each. 

Please note that these coverages may not apply to your specific Association—they are provided as general guidelines to help you understand Master Policy coverages. You may contact us for a specific explanation of coverages, which can be shared with your insurance agent.

HO6 Policies

• If you own a condominium unit or a townhouse where building coverage is maintained by your Association, you’ll need to purchase an HO6 policy.
• If you own a single-family home or a townhouse where you are responsible for building coverage, you’ll need an HO3 policy.
• If you rent your home, townhome, or condominium to others, you should purchase a Combo Dwelling policy.

HO4 Policies

• If you are a tenant renting your home from others, you’ll need to purchase an HO4 policy.

Loss Assessment Coverage

Another important coverage to consider when living in an Association is Loss Assessment coverage. Loss Assessments cover any special assessments levied against unit owners for losses not covered, or not fully covered, by the Association’s insurance. 

Many unit owner policies include a base Loss Assessment coverage of $1,000, with higher coverage options available for a nominal premium. For example, if a significant liability claim exceeds the Association’s master policy limits, additional claim payments may be assessed to unit owners on an equal basis.

While many other coverage options, enhancements, and endorsements are available, these are a few key areas often overlooked. We recommend reviewing your current coverage with an insurance agent to ensure you have adequate protection in case of a loss. 

Final Thoughts

If we can assist you with any insurance inquiries or coverage needs, please contact us at ccis@ciramail.com.

Please note that the information provided in this article is for educational purposes only and does not constitute legal or insurance advice. The codes, coverages, and recommendations discussed may not apply to your specific association, property, or situation. Always consult with a licensed insurance agent to obtain a detailed explanation of the coverages and exclusions that are relevant to your unique circumstances.