If you are buying a condominium, your lender will require that you have insurance to cover the home. This is because if the property burns down or is damaged in some way, the lender wants to make sure it gets its money back.

Your lender will require that you have a “master insurance policy”. This is taken out by the condo association, not by the individual owners.

However, you should also take out an “owners’ insurance policy” which is in addition to the master insurance policy.

You might not think of this, in the rush toward closing. Or, you might think of it, but figure you can put it off for a bit, until you’re settled into your new home.

Bad move.

If a unit is destroyed, the master policy will pay for the restoration of the walls and the ceilings. In some cases (depending on the insurance policy) if your appliances are damaged, the policy will reimburse you for the cost of replacement. Keep in mind that every insurance policy contains a deductible, and you should inquire of your association manager what that number is.

But any improvements that you — and even previous owners — made to the unit will not be covered. The insurance term is “betterments”; if you added wallpaper or remodeled your kitchen or bathroom, these upgrades will not be covered by the master.

Many owners do not understand this, and find out only when it is too late.

I highly recommend taking out your own policy. As the article mentions, it’s easiest to get an owners’ policy from the same company that issues the master insurance policy. That way, there’s no gap in coverage – the company can fight over which policy covers the damage. Otherwise, the two companies will fight each other to see who has to pay the claim.

I once had a client who owned a basement condo on West Canton Street. The third-floor tenants (TENANTS!) had a fire in their fireplace. After they went to bed, an ember popped out and got lodged between the hearth and the flooring. It burned for over an hour before it engulfed the floor in flames.

Everyone got out alive.

Fortunately, the fire department arrived in time to evacuate everyone and put out the fire.

Unfortunately, the fire department used water to put out the fire.

Which, due to the law (ha, you mean theory) of gravity, poured down into my client’s basement condo.

It was a complete disaster.

The master insurance policy covered some of the cost of repairs.

My client’s personal belongings and upgrades were covered by his owner’s insurance policy.

Oh, and don’t forget – you want to pay for “replacement cost” coverage.

(Whether or not you could sue the other owner for payment is another question, all-together …)

Source: Extra insurance coverage urged for condos – By Benny L. Kass, Inman News, by way of Mortgage101.com

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