Condominium owners, what you should know
A lot of people have questions as to why an individual unit owner would need to purchase a separate flood policy for their unit.
Every Condo Association has their own by-laws and CC&R’s, which determine how the condo association runs, and states the responsibilities the association has vs the individual unit owners. Each condo association will specify what they will insure the buildings for, if they will insure the interior of the units to ‘include’ improvements, or if they will only insure to put the unit back to the way it was originally constructed.
That being said, the unit owner must then purchase additional insurance for their improvements and contents, and loss of use. This valuable coverage is purchased under a homeowners policy called an HO6.
An HO6 policy does provide for ‘water damage’ coverage, but does not cover a ‘flood loss’. If a unit is located in an association that is in an A or V flood zone, then depending on what floor the unit is on, they would want to consider purchasing their own flood policy to protect their improvements and contents coverage.
The by-laws should be checked to see what the condo association will provide coverage for in the event of a flood loss, and it’s also a good idea to see if the association is insuring the buildings for 100% replacement cost or 80%. There are still a lot of condo associations that are not insuring the buildings for 100% replacement cost.
Some unit owners that should purchase a flood policy, don’t due to the cost. They figure that FEMA will step in and pay for any losses should they experience a flood loss. Most people don’t realize that FEMA will only step in if the state declares an emergency and there is a Presidential declaration of a major disaster. FEMA will then assist. However, depending on various factors, most owners end up paying high interest on disaster loans.
Flood insurance premiums are calculated based on factors such as:
- Year of building construction
- Building occupancy
- Number of floors
- Number of Units
- The location of its contents
- Its flood risk (i.e. its flood zone)
- The location of the lowest floor in relation to the elevation requirement on the flood map (in newer buildings only)
- The deductible you choose and the amount of building and contents coverage
If you own your unit and it is located in a high-risk flood area, you will be required to purchase flood insurance if your lender is federally regulated or insured.