Buying a Luxury Condo? Here’s What You Need to Know About Insurance

Buying a Luxury Condo? Here’s What You Need to Know About Insurance

Owning a luxury condo or townhouse in New York can be more than a dream for those seeking the finer things in life. If you’re planning to purchase a Manhattan luxury condo, have you considered how you will be insured? Sure, it is not as glamorous as being close to the glitz of Times Square or the chic restaurants of the Meatpacking District, but knowing how you’ll be covered in case of a mishap will put your mind at ease in The Big Apple.

Did you know that your membership in a homeowners association for your luxury condo’s building may not fully cover you should a catastrophe occur? Let’s take a brief look at how your homeowners association can affect how you’re covered and steps you can take to ensure full coverage.

Insurance Gaps?

In recent years, townhouse/condo associations have been choosing higher deductibles on the master policy to keep costs down. The catch is that the responsibility of damages shifts to individual unit owners, even ones that may not be directly responsible. Combine this with some of the fine print of most HO 6 policies and there can be some glaring gaps of your coverage. In fact, the most basic of HO 6 policies only provides $1,000 for structural coverage, which may be below your legal responsibility.

In addition, loss assessments that are determined to be association-wide may leave the unit owner responsible. For instance, a person who sues the townhouse/homeowners association for an injury in a common area may end up exceeding the association’s general liability coverage limit, leaving the excess to be assessed to all unit owners and their coverage (if any).

Perils of Your HOA Policy

Most unendorsed homeowners associations like the HO 6 policy only provide coverage for named perils. This often excludes structural claims and personal property claims. As an example of how limited this is, if a roof leak destroys your Steinway piano and carpet, the unit owner is responsible—not the master policy. “Water damage from roof leaks” is not included on HO 6 policies.

Another reason why the HO6 policy is insufficient is that some homeowners associations have changed their rules so that the master policy deductible is assessed solely against the affected units, which raises the deductible significantly. Some insurers have developed a specific endorsement that unit owners that can purchase to cover this increased deductible assessment, as well as other insurers have amended their coverage to include this coverage.

The Risk of Your Unit’s Interior Structure

Your homeowner’s association insures the majority of the structure of each unit, but the unit owner is responsible for the part of the structure not covered by the master policy. The most typical coverage found in the declaration document is that unit owners are responsible for “everything inside the bare walls and bare floor of the unit.” This can include:

• Flooring (ex. carpet, hardwood floors, tiling, etc.)
• Wall coverings
• Light fixtures
• Plumbing, including toilets and sinks
• Built-in appliances
• Cabinets
• Unit owner improvements (ex. screened-in porch)

Tips to Ensure You’re Protected

• Take an inventory of building items (ex. plumbing, carpets, etc.) and structure that the owner of the condo is responsible for. This will be found on your association’s declaration document. 
• Upgrade your insurance coverage from named perils to “all risk” coverage, as this will cover more types of losses for a minimal increase to your premiums.
• Consider purchasing sewer backup coverage and flood insurance  to make sure that catastrophes like Hurricane Sandy allow a full recovery and minimize your losses.
• Purchase an umbrella policy that includes coverage for association volunteer activities (ie. serving on the board).

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As you can see, there’s more to being insured than simply joining your homeowners association—the responsibility ultimately rests on you. At RiskBlock, our advisors can create a personalized solution that’s precisely tailored to your situation that not only provides peace of mind but clears out the confusion that comes with the insurance industry, helping you and your family rest easy in the The City That Never Sleeps.