When it’s time to get or renew your community association insurance, the worst thing you can do is put economy over quality. As the manager of your community, everyone looks to you for guidance and wisdom. Underestimating the possibility of a slip and fall, a fire, flood, lawsuit or other unforeseen situations is a bad idea. The association would have to pay out of pocket to make up for the gap in coverage and could adversely affect your yearly budget and reserves.
It’s important to take the time to fully explore your options. But where do you start? Community association insurance is about being prepared for the unexpected. These five tips can help you find the insurance policy that is right for your association:
1- Coverage of Physical Assets: Each year, as your policy is renewed, the limitations as to what is covered and what is not will be listed on the declarations page of the policy. Make sure you review this in detail in case any physical assets are damaged or destroyed. Take into account the size and square footage of the property when determining how much coverage you’ll need; for example, if it takes $100 per square foot to rebuild the structure of the property and the building has 8,000 square feet of space, you should be sure to have $800,000 in dwelling coverage. Keep in mind this covers only structural damage. Damages to the land or additional parts of the property like pools or garages may not be covered and will require additional coverage. Be sure your agent calculates the value of all your physical assets and obtains enough coverage for all of it.
2- Who is responsible?: It is important to understand where the coverage of your community association insurance ends and where individual homeowner’s insurance or renter’s insurance begins. Consider the delegation of responsibility if a disaster occurs. Your condo docs should express what parts of the property are the responsibility of the association and what is the responsibility of the homeowner. For instance, if your property suffers a water leak, water damages to the drywall and ceilings tend to be the association’s responsibility although the leak was originated inside a homeowner’s unit. Conversely, if the leak was originated from the property itself like a burst riser, the appliances and personal property are the responsibility of the unit owner.
You and the association’s board should encourage or, as some associations do, mandate, that your residents have individual homeowner’s or renter’s insurance to ensure damages are covered regardless of who is responsible.
3- Agents vs. Larger Companies: There are individual agents and there are larger, nationally ranked companies. Individual agents tend to give more personalized, focused service but sometimes the national companies have better rates for the same level of protection. Be sure to do your homework on both and determine which is more beneficial for your association. Also, with each company or agent, compare differences in policies at length before making any decisions.
4- Protection from Lawsuits – One of the realities of being a leader in your community is being in the line of fire for lawsuits. Common suits filed against landlords, associations and property managers involve unlawful evictions, physical injury, discrimination and invasion of privacy. While not all companies offer policies that cover this, it’s recommended to find a policy that will cover the legal expenses incurred during the litigation. If the resident wins the suit, it should also pay the damages awarded.
5– Get the Association’s Lawyers involved: Consult with the association’s attorneys and go over all documentation. The more involved they are in the shopping and insurance selection process, the better off and more informed you and the other association board members will be.
Many believe that the chances of some of the risks such as uninsured workers getting injured on the property or natural disasters is so slim that the money saved by going uninsured is worth it; however, no one can predict these situations and if it does happen, it could end up costing more to the association. It’s important to do the research and take the time to shop around so that the community association insurance you choose, is the best deal and protect you on all fronts.