Condo insurance by definition is different than individual homeowners insurance. Your own condo belongs to you, of course...but the building itself belongs to all the owners - at least the ones who have condos in that building. There are also the parking lots, the pools, the landscaping, and all the common areas to consider. These also belong to the owners as a group, which is represented by the HOA, or Homeowner's Association. There are special insurance needs for a commerical condo association. Aside from property replacement, there is insurance to handle lawsuits and injuries or other liabilities.
Condo Assessment Insurance
Your homeowner's association buys condo association board insurance as a large policy similar to commercial property insurance. A good HOA will take bids and shop around for the best prices and coverage of this master policy. Especially with condo insurance in Florida and other beaches, the prices can vary widely, and have even been unavailable after years with heavy hurricane losses. An estimation is made to replace the buildings and grounds in case of a disaster, and the insurance is purchased for the year - often at a cost of around $20,000 or even more. (Surprising, isn't it?)
So the HOA has condo association liability insurance to cover the building and common amenities, and you, hopefully, have H06 condo insurance that covers your personal unit and inside belongings. So you feel safe that your investment is completely safe and insured. Is it?
Condo Special Assessment Insurance
Let's pretend there is a catastrophic event such as a Katrina-like hurricane. The condo buildings are leveled and destroyed. All the trees are uprooted and gone. The parking lot pavement is damaged from fallen objects and a tree has fallen into the pool and cracked the concrete. Outside electric lights are gone and everything about the complex is totally destroyed.
When the HOA purchased the master policy, let's say they estimated that it would take 1.5 million dollars to replace everything. As often happens in an area after a hurricane, there are many homes and condo complexes that have been destroyed. Many folks are vying for contruction companies to come in and rebuild and repair. And the contruction companies from other cities and states roll in to enjoy the extra work. Because of the demand, they go up on their prices. When your turn comes, the cost to rebuild and replace ends up being 2 million.
Who pays for that extra $500,000? (and I'm way underestimating costs here!)
The HOA has to ask for a special assessment from all the homeowners to cover that difference. All of a sudden you may be hit with having to pay $10,000 or more out of pocket to replace your home or rental condo.
You have perhaps heard of condo assessment insurance or condo special assessment insurance. Did you assume that was an insurance to cover any assessment you may incur? Well, it doesn't, but in the case of a TOTAL LOSS of the property like our hypothetical situation here, you will hopefully be covered. If your H06 condo insurance has a special "Loss Assessment" clause, your own insurance company will ante up the extra money beyond the original coverage totals. There still may be a problem, as this extra amount is standard at a $1000 maximum. You may want to inquire about extra coverage if you're in an area that could face a total loss.