Q: We are about to settle on a condominium unit and do not understand what kind of homeowner's insurance we will need. We thought that most lenders require some form of fire and hazard insurance as a condition for making their mortgage loans. Can you advise?
A: When you buy a single-family house, you will be required to obtain a hazard insurance policy naming the mortgage lender as a beneficiary in the event of a fire or other hazard. Needless to say, lenders do not want to make loans if they are unable to have their funds returned in the event of a fire that partially or completely destroys your home.
At settlement on a single-family house, the buyer generally has to furnish an insurance policy that is acceptable to the mortgage lender.
When you buy a condominium unit, you do not have to purchase an individual policy. The condominium association will have a master hazard insurance policy that covers destruction or loss of all or a portion of the entire building, including your unit.
Generally speaking, at settlement your attorney will obtain an "endorsement" to the master insurance policy, specifically including your unit and your lender in its coverage. Thus, although you need not obtain such a policy, your lender will not make the loan unless given that endorsement at settlement.
You should take an active role in this matter. First, when you have selected your title attorney, make sure he or she understands the necessity of obtaining this endorsement to the master insurance policy.
Next, it is a good idea for you to find out from the condominium association or the management company the name of the insurance company and agent. Contact that company directly. Inquire as to the scope of coverage for the entire condominium association. If possible, it is a good idea to obtain a copy of the master policy so that you will be aware of its terms and conditions, as well as the extent of the insurance coverage.
There is one additional insurance matter that must be considered. Although your building, and the structure (walls) of your unit are covered under the master insurance policy, you do not have insurance coverage for your belongings. Additionally, if someone is injured in your apartment, or if your apartment is vandalized, the master insurance policy will probably not cover those events.
Accordingly, it is strongly recommended that you obtain your own policy to cover events and items within your own unit. This is usually called a condominium unit policy. You should discuss the coverage and cost with the company handling the master policy, since they will be able to give you this kind of policy. You should also comparison shop with other insurance companies.
Insurance is a very complicated matter--especially in a condominium. Once you have settled on your apartment, and have moved into the condominium, I suggest that you discuss the entire question of insurance coverage with the president of your condominium association. All too often, associations do not have adequate coverage, and it will be too late to increase the coverage after something has happened. It is also recommended that your association invite the insurance agent to one of the annual meetings, so that the extent and scope of coverage can be discussed and unit owners's questions can be answered.
Benny L. Kass is a Washington attorney. Write him in care of the real estate section, The Washington Post, 1150 15th St. NW, Washington 20071. For a copy of the free booklet, "A Guide to Settlement on Your New Home," send a self-addressed, stamped envelope to Kass at 1528 18th St. NW, Washington 20036.