Saturday, October 20, 2018


Why Should I Buy Condo Insurance?

Many condo owners believe that the HOA Master Policy covers all the insurance they will need. Nope. There are several reasons to buy condo insurance:

  • The HOA Master Policy usually covers the master structure: exterior walls, foundation, roof, plumbing, wiring, heat, a/c, etc.  The specifics are in your CC&R's.  You have an obligation to rebuild some portion of the interior, defined, again, by the CC&R's.  Check with your HOA for specifics.
  • Condo insurance may be required by your finance company as a condition for your loan.
  • A condo policy covers your personal property which is to say the contents of your condo, aka: your stuff, against fire and theft and other losses.
  • A condo policy can provide coverage for you against personal lawsuits.
  • Condo coverage can protect you against a surprise bill from your HOA for obligations you have as a condo unit owner that you didn't know about, such as damage to the common areas of the condo for which each owner will be assessed a portion.
  • A condo policy covers the portion of the condo interior walls and structure that you are obligated, by the HOA, to replace in the event of damage that are not covered by the Master Policy.
  • Loss of Use coverage pays for your room and board if you are turned out of your condo for a loss that's covered in your policy, such as fire.  It supplements your normal budget until repairs are done and you can return to your condo.

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Sounds pretty simple, right? Well, the other thing is that condo insurance is the most misunderstood and complex form of homeowner insurance.

The most popular coverage on a condo policy (designated as Homeowner Form HO6) is the Contents Coverage, referred to as Coverage C on your policy. It is the value of all your personal stuff in the condo. It includes your clothes, linens, electronics, rugs, furniture, drapes, decorations, appliances, bedding, china, dishes, silverware, cutlery, pots and pans. Everything. Get an idea of what the replacement cost of all that stuff would be. Just ballpark it to begin with. You are buying protection for your personal possessions against damage from Fire, Theft, Wind, Hail, Storm, etc.

Replacement cost of your contents means just that; what will it cost to replace it, new for old, not the garage sale value. If you have a twelve year-old TV, it's not worth much but the cost to replace it may be $1,000. That will be your replacement value. Come up with a figure to replace all your stuff in the condo. 

Dwelling, Structure or Additions and Alterations coverage. This will be referred to as Coverage A on your policy. With condo insurance this coverage refers to the portion of the interior that you are responsible for replacing in the event of interior damage. Your Home Owner Association should be able to tell you or show you in the CC&R's what your responsibility is to replace interior construction if there's fire damage, for instance. Often the condo owner's area of responsibility is described as "wall in" or "wall-covering in" . In other words you are responsible for replacing everything from the studs in, including the drywall or you are only responsible for replacing the wall covering, e.g. paint, wallpaper, paneling, etc. It almost always means that you are minimally responsible for replacing the wall covering, floor covering, cabinetry, fixtures. Sometimes it includes rebuilding the entire interior, including drywall and water pipes and electrical cable, etc. that is contained in the interior walls of your condo. That's a lot. Get it clarified with your HOA.

Comprehensive Personal Liability Protection, referred to on your policy as Coverage E, covers you against lawsuits made by persons who feel you have injured them as the result of your negligence, such as leaving a hose across the sidewalk that causes a person to trip, fall and sustain injury.

Loss of Use or Additional Living Expenses coverage, referred to as Coverage D on your policy, will pay you for the additional room and board and living costs if you are turned out of your home as the result of damage covered in your policy, while the repairs are being done, after a fire, for instance.

Loss Assessment coverage is peculiar to Condo policies. If there is damage to the common areas of your condo, such as pool or club houses, then each condo unit owner will be assessed a portion of the damage (the loss) that isn't covered by the master policy. So you may get a surprise bill one of these days. How much could it be? Ask your HOA. They should know what is and is not covered on their master policy and how the cost would be divided up. 

When you own a condo you are responsible for insuring what is inside. You must provide insurance for your personal possessions,of course, but also for portions of the interior structure of your condo in the event of structural damage. Your condo association provides insurance for the exterior of the building, called the Master Policy, but not the interior, fixtures, cabinetry or even interior walls. Make sure you are covered. Generally Home Owner Associations Master Policies only cover the outside of the building, your unit framework, common areas, and, possibly, some fixtures to your condo. 


Auto insurance costs in California are on a steady rise.

Almost all, if not all, car insurance companies are increasing their rates. Auto insurance in California is becoming unprofitable, some companies have stopped writing new auto insurance business and few if any new companies are coming in to the state. I've never seen anything like it. Here are a few reasons:

The costs of paying claims, bodily injury and car damage, are increasing dramatically. We all know that medical costs have gone up and the cost of auto parts is also way up. The complex integrated computerized and robotic systems in today's cars means that a $70,000 car that sustains only $25,000 of body damage may be totaled-out because of the cost of those complex systems that would need be replaced in addition to the cost of body and mechanical damage repair. The total cost ends up being more than replacing the car and the insurance company declares the damaged car a total loss.

Frequency of accidents is way up. There are a number of reasons for this:
  • The already congested urban areas are even more congested.
  • People are more stressed than ever; we are having the craziest political and news cycles I've   ever seen.  Bonehead politicians are talking about nuclear war. Stressed people make mistakes.
  • Increased use of drugs, legal and illegal, prescription and recreational. 
  • Increased use of cell phones, texting and other sources of distracted driving.
  • Modern car design with built in blind spots, presumably compensated for by complex camera systems that many people use instead of, themselves, looking around behind them.

Consequently, Loss Ratios are up and are unsustainable. Loss ratio is the ratio of claims-paid-out to premiums-received-in. There are major auto insurance companies that are operating at ratios close to 100%, where 58% - 70% is profitable. 

Competition among auto insurers has decreased. With the auto insurance market less profitable, some companies have stopped writing new business (I have lost 15 companies in the past 2 years) and new companies are not venturing to enter the California auto insurance market because it is not profitable, thereby strangling competition. Without competition the consumer is at the mercy of the remaining companies. 

Increasing government intervention, direct and indirect. This also deters competition and restricts the flexibility needed by insurance companies and businesses to respond to normal cycles or extreme events.  

This is a summary of reasons for your rates going up. There are some more technical and legal ones, but this should give you a good idea of what's happening in California regarding your insurance rates.

Stephen B. Groton