When it comes to insurance for condos, each owner must rely on two policies to be fully protected against loss: master policies and personal insurance policies. Understanding the differences between these two can help condo managers and members make informed decisions about their insurance needs.
Master Policy for Condos
A master policy is a comprehensive insurance plan purchased by the condo association itself. It typically covers common areas, individual units as originally constructed, and liability protection for the association as a whole. Here are some key aspects of master policies for associations:
- Property Coverage: Master policies are designed to provide coverage for common elements and units within the community. This includes the building structure, the units as originally constructed, swimming pools, landscaping, other structures, and other amenities owned collectively by the association.
- Liability Protection: In addition to physical property coverage, master policies also include liability protection. This can be crucial in case accidents or injuries occur on the association’s property.
- Uniform Coverage: The terms and conditions of a master policy are uniform for all members of the association. This ensures consistency and equity in coverage among all owners.
- Managed by the Association: Typically, governing documents and the insurance contract specify that the board of directors, or management company via direction from the board, is responsible for managing the master policy. The board is identified as the singular managing party to make decisions related to the master insurance coverage. Individual owners cannot file claims or make decisions relating to the master insurance coverage.
- Coverage Limitations: While master policies provide defined coverage for common areas and units, they have limitations and do not cover personal property, betterments and improvements within units, and many other exposures owners may have. It is essential for individual homeowners to understand what is and isn’t covered under the master policy.
Personal Insurance for Homeowners
Personal insurance, often referred to as HO-6 insurance for condominium owners, is a policy purchased by individual homeowners within the association. This insurance covers personal property, interior betterments and improvements, cost of living expenses, and liability protection for the homeowner. Here are some key aspects of personal insurance for homeowners:
- Personal Property Coverage: Personal insurance policies protect a homeowner’s personal belongings, such as furniture, electronics, clothing, and appliances. In case of theft, fire, or other covered events, homeowners can file claims to replace or repair their personal property. This includes temporary storage of personal property that may be required in the event of a loss.
- Betterments and Improvements Coverage: While master policies typically cover the original construction of the unit, such as walls, floors, cabinets, countertops, appliances and other fixtures, it does not cover the cost differential for betterments and improvements. An HO-6 policy is the only way to cover the cost different between betterments and improvements and the modern-day cost of originally constructed material within the unit that is covered by the master policy.
- Liability Protection: Personal insurance includes liability coverage, which can be crucial if a homeowner is found responsible for injuries or damage to property or others, either inside or outside their unit.
- Customizable Coverage: Homeowners have the flexibility to choose the coverage limits and deductibles that best suit their needs. This allows for tailored protection based on individual circumstances. It is always best to provide the coverage terms of the master policy to your personal agent when identifying appropriate limits of coverage to ensure there are no gaps in coverage between the HO-6 policy and the master policy.
- Independent Policies: Each homeowner is responsible for obtaining and maintaining their own personal insurance policy. The cost of personal insurance is separate from association dues and varies based on coverage choices and other factors.
The Bottom Line
Master policies and personal insurance policies serve distinct roles in condo associations, and both types of insurance are essential for comprehensive protection within the association. Collaboratively, these policies contribute to the financial security and well-being of both the association and its individual members. If you have any questions or need further information on this topic, please let us know.
