Condo association insurance is often the first line of defense against financial ruin in times of crisis. Board members would be wise to obtain a comprehensive policy to protect their assets and finances. Learning the types of condo insurance and what they cover is essential to securing the right policy.
What is Condo Association Insurance?
A condo association master policy protects the exterior structure and common areas of the community. It also protects against liability resulting from accidents or injuries in shared spaces. This type of insurance usually covers roofs, elevators, hallways, and amenities, but it rarely covers interior units and personal belongings. Those things require a separate HO-6 policy.
Every association should have a condo master policy. To maintain this policy, boards must pay premiums, which are funded by condo fees paid by unit owners.
Is Condo Association Insurance Required in Illinois?
Many condo communities are mandated by law or their governing documents to obtain a master policy. This is true in Illinois. According to 765 ILCS 605/12, condominiums must obtain property insurance, general liability insurance, fidelity insurance, and directors & officers insurance.
The master condo association insurance policy usually covers property damage and liability. Yet, some associations maintain a separate liability policy that’s more comprehensive. Fidelity insurance covers fraud, theft, and other financial crimes perpetrated by directors, officers, or employees. Finally, D&O insurance covers the board in case of legal claims or lawsuits.
In addition to state laws, a condo’s governing documents may impose additional or more stringent insurance requirements. Board members must verify these requirements and ensure compliance.
The Importance of Condo HOA Insurance
Condo master policies serve many important purposes. Insurance protects the shared elements and spaces within a condo community. If the association property is damaged, boards won’t have to tap into their operating budget or reserves to cover repair costs.
Master insurance for a condo association also covers liability. If a person suffers an injury in a shared area, they could sue the association. Condo insurance can help cover legal costs and monetary damages.
Additionally, condo insurance protects the association in case of natural disasters or emergencies. Covered perils typically include fires, theft, and vandalism. If damage occurs as a result of these, insurance can cover the damage and restoration.
Overall, condo association insurance helps preserve property values by ensuring proper maintenance and repairs. It limits the financial strain on the association and its members. Without insurance, the COA would have to pay for these damages and legal costs out of pocket, sometimes forcing the board to raise dues or levy special assessments.
If nothing else, insurance ensures compliance. Most state laws and governing documents require adequate coverage. Failure to secure the required policies can lead to legal problems.
Types of Master Policy Insurance for Condos
There are three types of condominium association insurance: all-inclusive, single-entity, and bare-walls-in. All three cover property and liability in shared spaces, but they differ in terms of individual unit coverage.
Bare Walls In Condo Coverage
This is the most basic type of master policy, covering only the structural elements of the unit, such as walls, floors, and ceilings. Unit owners are then responsible for their interiors and personal belongings.
Single Entity Coverage
This type of policy covers the building’s structure as well as the original fixtures in individual units. If an owner made an upgrade to the unit, single-entity insurance does not cover it.
All-In or All-Inclusive Coverage
This master policy covers everything, including improvements and renovations to individual units. It covers the building’s structure, the original fixtures and appliances of interior units, and upgrades.
Understanding Condo Association Insurance Coverage
The extent of condominium association insurance coverage will depend on the type of policy the board gets. Still, master policies typically cover:
1. Property Damage
Most condo association insurance policies cover the building exteriors, shared elements, and common amenities. If damage occurs as a result of a covered peril, insurance can pay for the repairs.
2. General Liability
If the association becomes embroiled in a legal battle arising from accidents or injuries that occurred on shared premises, the master policy can cover attorneys’ fees, court costs, and settlements. Liability coverage is often basic or limited, so many boards opt to purchase supplemental coverage.
3. Loss of Income
Loss of income coverage comes in handy if the association’s common areas earn revenue. For example, a COA may rent out its clubhouse for events. If the clubhouse becomes unusable for a time, insurance can cover it. This isn’t always included, as it depends on the policy.
4. Fidelity Bond
Also known as crime insurance, this coverage applies if the association loses money due to fraud, theft, or other financial crimes committed by board members, managers, and employees. If the master policy doesn’t include this, boards should obtain a separate fidelity policy.
5. D&O Coverage
Some master policies provide protection for board members if they are sued by a unit owner or vendor. Keep in mind that D&O insurance won’t cover board members if they have breached their fiduciary duty or acted with malicious intent.
Frequently Asked Questions
How much is condo association insurance?
The cost of condo insurance will depend on the building’s age, location, and condition. The number of units and the type of coverage can also affect the price. That said, condo boards should expect to pay an annual premium between $1,000 and $5,000 per building.
Does condo insurance cover individual units?
It depends on the type of master policy the condominium carries. All-inclusive policies usually cover interior units, including fixtures, appliances, and upgrades. That said, even all-in policies don’t cover personal belongings.
Single-entity and bare walls policies are even less comprehensive. If the condo only carries those, unit owners will have to obtain more detailed coverage for their individual units. It is best to check the condo’s master policy first before securing their own insurance.
Does condo association insurance cover floods?
More often than not, condo master policies don’t cover damages resulting from floods. This type of coverage requires a separate insurance policy.
Does condo association insurance cover earthquakes?
Most of the time, earthquake damage is not covered by condo master policies. Board members will have to obtain a separate policy to cover property damage resulting from earthquakes.
Working Together
Condo association insurance plays a key role in preserving a community’s financial health and property values. Board members should shop around and compare bids before committing to a policy. It is equally important to remind owners to secure their own HO-6 policies, as condo insurance doesn’t always cover everything.
First Community Management offers expert financial services to condos and HOAs in Chicago and beyond. Get in touch with us today!