Condo Coverage Must Be Customized to Needs

It’s a strata, condo, flat, co-op or just an apartment.  But for more and more Canadians, it is their home of choice particularly in our rapidly growing cities.

Whether it is young adults purchasing their first home, or empty‑nesters downsizing as they enter retirement, condominiums are clearly satisfying the needs of an increasingly diverse segment of the urban population.

Coming off of recent record years for condominium development, the market saw a balancing between new starts and condominium re-sales in the first half of the year, and a move towards pre-recession numbers during the summer months;—numbers that  are still higher than anticipated, as consumer confidence picks up once again. 

One of the key drivers for this renewed real estate activity is the First-Time Home Buyer Tax credit.  According to a recent survey by the CMHC, 49% of people planning to buy a home in 2009 are first-time buyers.  With prices for single-detached homes continuing to rise in Canada’s urban centers, condominiums remain an important and most viable option for first-time buyers looking to build equity.

Unique Insurance Needs

From an insurance perspective, condos have some unique risk exposures that condo owners may be unaware of.  As a result, they may find themselves without coverage during a loss because their policies did not properly address these specific needs.

The most common “condo gaps” include:

  1. Addressing the needs of two parties: the owner and the condominium corporation.
  2. Because of their smaller size, a loss involving a condo unit often requires the owner to seek alternate living arrangements, sometimes for an extended time.
  3. In high‑end condominiums, unique luxury finishes can add up to more than the cost of the condo itself.  Many owners do not cover these added features.

The three areas brokers should focus on when developing condo coverage are: contents, additions and alterations, and unit assessments.

Contents coverage is the primary focus for clients purchasing a condominium policy.

Determining the amount of coverage can be a difficult task particularly for those downsizing from a large home. Clients often underestimate the replacement cost of smaller items like personal electronics, clothes, kitchen utensils, CDs, DVDs, children’s toys and tools.

Brokers can suggest a thorough home inventory using numerous guides that are available to open client’s eyes to their risk. Brokers should make sure coverage includes contents not stored in the insured unit, either in the same building or in a self-contained  unit in a dedicated storage facility. Some policies may limit the percentage of contents covered outside the insured unit or the perils that are covered.

For luxury condo owners, policies should include special limits on high‑value items like wine, jewellery and fine arts. Any client in a high‑value condominium should look at a VAC rider.  The incentive for making sure clients consider this is that often these items can be insured at a lower rate than the standard contents rate.

Additions and Alterations
Typically a unit is purchased with basic bare walls.  Owners then add upgrades according to their taste and budget. Upgrades can include appliances, lighting fixtures and carpets, hardware, kitchen and bathroom cabinets, countertops, floor and ceiling mouldings, tile floors and hardwood floors.

Condominium laws require that the condo corporations have their own insurance that protects the structure and common areas of the building. However, upgrades are usually excluded from the corporation’s insurance policy. New condo owners may not be aware of this limitation. Brokers need to ensure additions and alterations (or ‘improvements and betterments’) coverage is sufficient to protect all the enhancements that unit holders have installed in their units.

If the previous owner installed improvements, those extra features are still considered part of additions and alterations by the insurance companies and will continue to be excluded from the condominium corporation’s insurance policy. Brokers should make sure the new owner purchases the proper amount of additions and alterations coverage to avoid a gap in coverage.

It is best practice to have the insured check with their condominium corporation about what is not covered, and to have their broker read and explain the coverage conditions carefully.

Unit Assessments
In a condominium, a number of common areas are available for use by all tenants of the building. These areas can include: gym, lobby, swimming pool, meeting rooms, party room, etc. If a loss occurs in one of these areas, a unit holder might have financial responsibility.
The condo owner’s insurance is called into play for common area losses when the condominium corporation’s insurance policy limit is not high enough to cover the full extent of the loss, or when the corporation assesses each unit holder a portion of the deductible related to the loss.

Brokers should look for condominium insurance that provides coverage for this—usually expressed as a percentage of the contents amount (e.g. 200%) up to a specific value with a separately defined and adequate limit related to deductible losses

A broker needs to carefully match each client’s needs and coverage. The keys are contents coverage, betterments and improvements coverage, and living expense coverage.  By properly assessing the needs of their condominium owner client, the broker can provide the expertise necessary to establish and maintain client relationships in the growing condo market.
Marilyn Horrick, assistant vice president, Chubb Personal Insurance, Chubb Insurance Company of Canada.

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