The Insurance Puzzle Making Sense of Premiums and Policies

Insurance is a relatively simple concept that any homeowner can understand. You purchase a policy paying a premium to an insurer, and when a claim gets filed, the insurer pays. So in theory, insuring a condominium or association property should be virtually the same principle—only on a larger scale, right?

Not quite. In reality, making sure your property is properly insured is a multi-layered process that board members should take the time to understand. Having the right kinds of insurance and the right amount of coverage could be vital for your community’s financial—and sometimes physical—survival. A solid understanding of what comprises a typical condominium policy can help your board protect your unit owners, as well as the investment they’ve made in their homes.

The Right Package

According to Joel A. Davis, regional marketing director for Community Association Underwriters in Hoffman Estates, an association's policy begins with what he calls a package policy, which includes property insurance and liability coverage. Property insurance is a first party coverage in which the insurance company will repair or replace the property that is damaged. General liability is a big component of the liability side, the third party coverage. The two main components of general liability are to provide defense to the insured and pay out damages to the injured party, which is subject to a policy limit.

Davis adds that there are several other components that associations should add to the “base” package, one of which is boiler and machinery coverage, which is often not automatically included in many policies.

“The name is a little misleading because it applies to damage of sudden accidental breakdown of a boiler. But the reality is that about 75 percent of these claims are electrical in nature, and they involve things like power surges or electrical arching. So many associations said, "Well, we don't need this coverage because we don't have a boiler,” when in fact, they need it for all other kinds of things such as problems with alarm systems or heating, ventilation, air conditioning, things of that nature. So, it's really what this policy does is it fills in the gap in coverage for property policies,” he explains.

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