Buying a Condo? Questions Everyone Should Ask About Earthquake Insurance

What questions should you be asking the condo HOA about their master earthquake policy prior to considering the purchase of a condominium in California? What are best practices in protecting your real estate assets when you are a condo owner in California- earthquake territory?

As condo owners look to refi their units at record pace, the fun of gathering HOA docs, and understanding what insurance your association has vs what you need begins.

1) The two critical docs that direct a condo owner needs are the master policy (earthquake or fire) and the associations governing docs.  The master policy will either cover the interior of the units – which often depends on the requirements of your associations governing docs – or will only cover the common areas and residential buildings.  Leaving the condo owner to responsible the property inside their unit.

2) If the unit owner needs to cover the interior of the unit, the lender will require, the condo owner to purchase a HO-6 policy.  If the master policy does cover the unit interiors the lender will not require this policy… Thus knowing this is very important.  If a unit owner doesn’t have to buy an HO-6 policy that can save them $500 a year.  Thus, always check with the association’s insurance agent to see what is necessary.

3) Also, for all condo owners, always check what the master policy fire or earthquake deductible is since it impact you potentially.  If a loss, let’s say water or fire, stems from your negligence the master fire policy will cover the damages BUT you will be responsible for paying the deductible.  You can insure this exposure by purchasing “loss assessment” on your HO-6 policy in the amount of your master policy deductible.  This is usually $10 a year so it is a very wise purchase.

Now, as for earthquake, statistically speaking only 10% of the 35,000 condo/townhome associations in California have a master earthquake insurance.

1) If your association has a master earthquake policy, you will want to know how much coverage the association purchased, does it cover unit interiors and what the deductible is.   You can purchase your own individual earthquake policy to fill in the gaps… Or you can roll the dice and not purchase additional insurance.  It is elective.

2) If your association does not buy a master earthquake insurance policy or enroll in the new “opt-in” master earthquake program, you are in a lot of trouble.  There will be no way for you to fully protect the equity in your home.  The individual options available were only built to supplement a master, not replace one.