Condo Insurance for Dummies
If you’re a Montrealer, then you have definitely taken note of all the condominium projects that are being erected around the island. Never in the city’s history have we had so many condo buildings constructed at the same time, and due to the fact they are being built so rapidly, not all of them are built with the highest quality standards. The good news, however, is that most of them are built properly! As a condo owner myself, I am going to give you a few pointers to watch out for when buying your first condo.
1) Condo fees → These are always going to be calculated at a rate per square foot. Example, if you own an 800 sq. foot condo, and it costs $0.30/ sq. foot, your monthly condo fees will be $240. This goes into a pool to pay for the building’s every day expenses like the amenities, the insurance, and the landscaping. Condo fees also contribute to the “contingency fund” which is money set aside for when parts of the building are at the end of their life. For example, the roof will need to be redone every 20 years or so. This fund would also go towards replacing things that are at the end of their life, such as redoing the roof or replacing the air exchanger. As of December 2018, there is a third fund that all syndicates are required to have by law. This is called the “insurance fund”. This fund needs to have the amount of the building’s highest deductible available at all times. This way if the syndicate needs to open an insurance claim for damages to the building, they can pay the deductible right away and avoid delaying the start of repairs. ***WARNING*** If you are purchasing a unit in a new condo project, your fees will not stay at the low price they start at; the promoters are attempting to sell the units, and will always low-ball the condo fees cost. As an example, when I first moved into my brand-new building, the cost was $0.30/ square foot; today it is $0.42/ square foot, only two years later. Budget for a solid 25%-40% increase in condo fees in the first few years.
2) Ask for the minutes of the condo association’s meetings → If you are purchasing a condo that is a few years old, ask to see the “minutes” of the condo association’s last annual general meetings. This will give you a glimpse into how the building is run in terms of management, if it has water damage issues (most buildings have serious problems with water claims), and much more. It is a very real issue and I can say that there are definitely “lemons” when it comes to condo buildings; some of these structures are built very poorly, and trying to sue the contractor who built it can be extremely long and costly in terms of lawyer fees. Most lawsuits brought against contractors go nowhere.
3) Try and visit when the neighbours are present → So you’ve bought this $500,000 condo with a beautiful view, only to find out that a DJ lives next door and loves hosting after hours parties. There’s nothing worse than having inconsiderate neighbours, so try and visit the unit while the neighbours are present.
Now, let’s dive into the insurance portion and start with the basics. Condo insurance is split into two parts.
Part I: The condo building itself → everyone who lives in your building pays into this insurance policy, it is one of the major common expenses that contribute to your monthly condo fees. Now, I want to make this clear; when I refer to the building itself, I am talking about the entire structure that cost $250 million (example) to build which also includes each individual condo unit. This is one insurance policy which covers the building and everybody’s unit, including yours. The unit you purchased, this structural “box”, is insured under the condo association’s policy. So, for example, if your entire unit catches fire and needs to be rebuilt, this would be a claim under the syndicate’s insurance policy.
Part II: Your personal belongings within your condo unit → This can be split up into several sections which we will dive into below, with an example for each section.
Liability → covers you for third party property damage and bodily injury. Most condo associations will oblige you to have a minimum of $2,000,000 in liability insurance if you are to live in their building. Why? Because they want to have the option to subrogate against you in the case that you cause damage to the condo building.
Example: you forget that you left the faucet running, and you leave your condo for the day. In the meantime, the water outflows everywhere and damages your unit, along with 3 units below you, costing a total of $50,000 to repair. Because you are damaging other people’s property, i.e. other people’s unit, you would be liable to pay for the cost of repairs.
Your contents / personal belongings → At KBD we offer an all risk condo insurance package through Intact Insurance. Here are some of the main perils that we cover for your personal belongings:
– Water damage
– Mysterious disappearance
Example: someone breaks into your home, steals your laptop, TV and your Xbox for a total of $2,000. This would be covered, at replacement value, meaning the insurance company would pay for you to purchase NEW items. Don’t forget that you will also need to pay your deductible first.
Additional Living expenses → In the event that your condo is deemed unliveable for a period of time, the insurance company will cover the costs that are over and above your normal day-to-day living costs. This happens a lot more than people think, and is one of the more important coverages to have present on your insurance policy.
Example: You live on the highest floor in your building, above your unit there is a common space terrasse for the people who live in your condominium. Someone accidentally starts a fire on the roof from a cigarette that they didn’t fully put out (this is a true story and an example from the building I currently live in). In order to put the fire out, the fire department needs use gallons and gallons of water, which leaks into your unit below, rendering it unliveable for a period of 4 months. If you are living downtown, renting out a space for a period of four months is going to cost you at least $6400. This would be covered by your insurance policy under “additional living expenses.”
Improvements and betterments → covers you for any upgrades / renovations that you put into your condo unit. If the renovations are going to increase the value of your condo unit, they will need to be insured as they are not covered on the condo association’s insurance policy. Remember, the condo association insures your unit in the condition that it was originally built. By law every condo building has to have a log of improvements made after that date, so if you’re not sure if the previous owner has made betterments, you can always ask your syndicate to consult this log.
Example: you renovate your unit and install new cupboards at a value of $50,000. Yeah, they’re pretty sweet cupboards. Your unit is worth $400,000 to rebuild (let’s assume you purchased the unit at this price as well), and after the upgrades it’s now worth $450,000. Your unit is destroyed after a fire, and let’s say your insurance company did not provide you with the “improvements and betterments” endorsement. Unfortunately, you would be out the $50,000 that you spent on the renovations.
Loss Assessment → insurance for the common areas within your condo building. Each condo is different and you will need to familiarize yourself with which common areas you are considered responsible for.
Example: there is a sewer backup in the basement of your building, and the people living in the condo need to collectively pay $100,000 as it’s not covered under the condo association’s insurance policy. If you had sewer backup on your condo insurance policy, and the condo association needed to assess the people who lived in your building to cover the $100,000 cost, your share would be covered under “loss assessment.”
To conclude, if you are a condo owner, then chances are you have heard horror stories about people who had to deal with claims caused to their condo unit. A condo insurance policy will protect you from a lot more than just theft or fire and should definitely be part of your budget when moving into or purchasing a condo unit.
Get your condo quote below, and one of our brokers would be more than happy to explain any further details if necessary.