If you own a condominium in earthquake country—roughly defined as the West Coast of the United States—you probably are underinsured. Unless you have an earthquake endorsement to your condominium owner’s insurance policy, your unit and the personal possessions in it are not insured against this not-so-uncommon natural disaster

Condominium Insurance Basics
Your condominium association has a master insurance policy for your building. This policy covers only your building’s exterior structure, including the roof, basement, elevators, and walkways. The inside of your unit and all of your possessions are not covered by the master condominium insurance policy.

To remedy this problem, many condominium owners opt for condominium insurance. Condominium insurance usually covers five basic areas: 1) Dwelling, 2) Personal property, 3) Temporary “loss of use” of your dwelling and possessions, 4) Personal liability, and 5) Medical payments.

Dwelling coverage insures your interior structure—walls and wall coverings, carpeting, and built-in cabinets. It’s important to keep this coverage up to date if you make an additions or alterations, such as a new wall or an expanded bath or closet. Damage to drywall, paneling, and even wallpaper is covered under dwelling coverage.

Personal property needs to be covered separately. A good rule of thumb is to assume that the first 1000 square feet of your condominium contain $40,000 worth of personal property—furniture, electronics, clothing, and accessories. Each additional 500 square feet in your condominium would require another $5000 in personal property coverage. According to this method of calculation, a 1,500 square foot condo would require $45,000 in coverage; a 2000 square foot condo would require $50,000 in coverage, and so on. If you own fine art, jewels, antiques, or collectibles, you will want to increase the coverage amount accordingly.

When insuring your personal possessions, make sure that you insure the replacement value, not the actual cash value. The actual cash value is the replacement cost of an item minus the amount the item has depreciated. Most items—especially electronics—depreciate, or lose their value, over time. The amount your insurance will pay for an item that has depreciated will not be enough to replace it with a new item. Unless you plan to haunt the thrift stores with your insurance money, you should insure your items for their replacement value. That way you can shop at Best Buy instead of Goodwill.

Loss of use coverage will help pay for expenses in the event that you need to move out of your condominium temporarily because it is damaged. Loss of use will cover temporary housing and the storage of personal property. It can even cover kennel fees for pets.

Personal liability coverage pays for medical expenses and legal fees when you are legally responsible for another person’s injury or property damage. Most policies offer $100,000 in coverage, but experts recommend carrying $300,000 of personal liability per occurrence.

Medical coverage is different from personal liability because it insures anyone injured on your property, whether you are legally responsible for the injury or not. Medical coverage can be as low as $1000, but it can be increased to $10,000 with additional coverage, known as an endorsement.
A standard condominium insurance policy will cover damage to your dwelling and possessions caused by a wide range of risks, including fire, wind, hail, snow, ice, objects falling from the sky, freezing of plumbing, accidental overflow from your plumbing, cracking and burning from steam pipes or hot water heaters, automobile accidents, vandalism and theft, and even rioting and civil unrest.

No “Fault” Insurance
Standard condominium insurance does not cover damage caused by earthquakes, floods, and—in some areas—hurricanes. That does not mean you are completely at the mercy of such natural disasters. It only means that you must buy an endorsement that covers the calamities that pose the greatest risk in your area. (Earthquakes and hurricanes do not normally occur in the same area, but floods can happen almost anywhere.)

Uninsurable Risks
Some risks are so prevalent that almost no insurance company will insure against them. These include damage by termites, rodents, pests, and even pets.  Deliberate damage to the condominium or your possession by anyone named in the policy will not be covered, either. These exceptions are sometimes referred to as “rats, cats, and brats.”
Other risks extremely rare but so catastrophic that they are not covered either. These include damage from war or nuclear accident.

The hardest part about insuring against a natural disaster is believing it can happen to you. It requires making an insurance appointment on a day when then the sun is shining, the sky is blue, and nothing seems like it can go wrong. Maybe it won’t. But it can. And if it does, you don’t want to be the one person in your condominium complex picking through the rubble without a claim adjuster at your side.

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More than ever, quality homeowners insurance is an absolute necessity.  Without it, an accident or natural disaster could mean financial ruin to you or your family. 

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