mortgage

6 condo insurance questions

"But there would be a deductible and that deductible would be assessed against all unit owners -- so if there are 10 unit owners, it would be divided 10 ways."

Cullina notes a recent trend in many states toward more expensive condo deductibles.

"In the past it might have been only $5,000, but we've seen $25,000 and up to $50,000," he says. "That's the biggest one I've seen. You could really be hit with a bill that you weren't expecting or didn't know about if you didn't do your homework up front."

The coverage should be spelled out in the association's bylaws, Slattery says.

"A copy of the association's insurance agreement should have been given to the unit owner at the time of purchase," he says. "It specifies the responsibilities of the association and the individual owners.

"If the owner does not have a copy, he or she can obtain one from the association's board of directors, its business manager or anyone from the association responsible for addressing individual unit owner questions. The owner's condo insurance sales representative should be able to assist in answering questions about the insurance agreement."

3. How much coverage is appropriate? 
Once you've determined exactly which parts of your condominium unit you must insure individually, you need to decide how much coverage to acquire.

Eileen Sutz, an agent with Allstate Insurance in Chicago, suggests estimating coverage by paying attention to how much other owners in the development paid for recent upgrades, such as new flooring, cabinetry and countertops.

"Another way we can roughly estimate that is we go by about half the market value for interior structures," Sutz says. "So, if there's a fire, for instance, people have enough to replace their flooring, their cabinetry and their walls -- anything else that's actually considered their personal responsibility. That's a pretty good way to estimate it."

4. Cash-value or replacement-cost coverage? 
Once you determine the appropriate amount of coverage, you'll need to decide how much coverage to purchase. You need to pick between two basic categories: cash value and replacement cost.

What's the difference? Thousands of dollars, in many cases.

Cash-value coverage only replaces the value of the insured item minus depreciation.

"With actual cost-value coverage, there's depreciation based on the age of your contents," Cullina says. "If the TV was 2 or 3 years old, we'd go see what it costs today and calculate the depreciation."

In this example, the person who lost the TV would receive a check for the amount that the TV was worth after two or three years of wear and tear.

By contrast, a person with replacement-cost coverage would receive a check for what it would cost to replace the old TV with a new model. Depreciation is not used in the replacement-cost model.

"I strongly recommend replacement-cost coverage for your contents, especially in a condominium association," Cullina says. "So if you had a loss, the insurance compensation would replace what it would cost if you were to buy it today."

5. Have you insured contents and structure?
When insuring your condo, make sure you have coverage for contents and structural items.

What's the difference?

Content vs. structure
Examples of contentExamples of structure
  • Furniture
  • Area rugs
  • Electronics
  • Jewelry
  • Valuable artwork/collectibles
  • Flooring
  • Cabinetry
  • Countertops
  • Carpeting
  • Lighting

"I often tell my customers that if they were to turn their condo upside down, everything that falls out is a 'content,'" Sutz says. "Everything that stays is 'interior structure.'"

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