A Primer on Financial Security Offered Through Proper Insurance

https://www.hoalendingxchange.comOffering peace of mind and financial security in the face of risk, insurance for condominium associations and other common interest communities is simply vital in sustaining a secure and fiscally strong environment. However, understanding the deductible system, coinsurance, and the division of responsibility between unit owner and association responsibility can be the difference between false and true security for associations and their members.

At the very core of the insurance relationship between unit owners and associations is an understanding of who is responsible for what. For the most part, unit owners are tasked and, in many states, required to carry homeowner’s insurance for the contents of their unit and the portion of their unit that is not covered by the association’s Master Policy. Even if it is not a requirement for association membership, it is good policy to require individual homeowners to have their own policy for the simple reason that it provides them coverage for unforeseen events that could otherwise create a fiscal hardship for them. Theft, fire, water damage, and more risks are typically covered by the homeowner’s policy. Unit owners should discuss their particular needs with a qualified insurance professional to choose the amount of coverage that is adequate for them.

Policies designed to protect the association are an entirely different subject matter, although equally important to the individual unit owner. Master policies cover the association common elements including buildings and grounds. One way to describe this coverage is “walls in”, meaning that the building exteriors up to the inside of the individual units are generally covered. Roofs, walls, hallways, elevators, lobbies, and such are covered. Improvements to individual units as well as contents are generally not covered. That isn’t to say that an association cannot upgrade their policy to cover some of these non-covered items but it will vary from association to association and additional coverage comes with a cost of additional premium.

Additionally, associations will purchase policies for Directors & Officers, commercial liability, Worker’s Compensation, and Umbrella, among others. Where it is deemed appropriate, associations may also need to provide Flood insurance. While all of these insurances provide fiscal piece of mind for unit owners within the association, all come with different terms and premiums based on the level of coverage and the associated deductibles and coinsurance amounts.

Coinsurance is the amount of risk that is shared by the insurer and the association and is assigned as a percentage value. The higher the coinsurance value, the lower the premium. However, as the coinsurance value rises, the potential uncovered loss to the association is also elevated. For this reason, associations need to be careful in determining their true risk when purchasing insurance with a relatively high coinsurance variable.

Deductibles are the out of pocket expense an insured entity will face when making a claim. Again, as the deductible amount increases, the insurance premium decreases. However, higher deductibles can create larger out of pocket expenses whenever an insured loss is experienced. In many instances, associations can also pass along the deductible to the unit owner making claim against the association policy thus reducing their liability and expense while still providing the required insurance.

While higher levels of coinsurance and increased deductibles may generate insurance savings to the association, they clearly add risk to the unit owners within the association. It is important that unit owners give their input to their Board as they weigh the sweetness of a low premium with the bitterness of financial burden to potential claimants. If your condominium or HOA needs funds to cover policy premiums or help pay for uninsured or underinsured losses, HOALendingXchange can help! Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

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Property Insurance and the Importance of Proper Coverage in a Time of Escalating Storm Intensity

https://www.hoalendingxchange.comIf you are a fan of great films, you have likely seen the movie, “The Perfect Storm”. Released in 2000, it tells the story of a group of unlucky fisherman who risk their lives to venture to the Flemish Cap where they have tremendous success in landing a great catch of fish they can sell at market for a handsome reward. However, standing in their way back to shore is the nightmarish hurricane that would become known as the Perfect Storm. If you’ve seen the film, you know the final outcome is simply tragic.

In the past, it seemed as though this Hollywood-style blockbuster of a storm was limited to faceless villains for suspense movies. However, with weather events this past decade across the country and around the globe, it is clear that community association leaders must pay great attention to the havoc and real-world losses these super storms can bring. We may not be able to avoid the storms but we can take steps to protect our communities from the financial destruction that is likely to ensue.

Whether you believe in global warming or not, the insurance industry is taking the threat of escalating storm intensity very seriously. The Insurance Information Institute (http://www.iii.org) provides accurate and timely information on insurance subjects. They have published a paper on climate change that addresses the very real impact on the insurance industry and those properties which underwriters insure. They acknowledge that while science has not yet provided all of the answers, they are encouraging insurers to spread the word about climate change and how insured properties can take steps to minimize potential damage.

Insurers often talk about disasters in terms of catastrophes. A catastrophe is a natural or man-made disaster that is unusually severe. The insurance industry declares a catastrophe when claims are expected to reach a certain dollar threshold, currently set at $25 million, and more than a certain number of insurers and policyholders are affected. A catastrophe can be a hurricane or tropical storm, which over the past decade have accounted for the largest portion of catastrophe losses, a tornado or winter storm, or any other type of disaster such as terrorism and earthquakes.

Catastrophes appear to be growing more destructive, but insured losses are also rising because of inflation and increasing development in areas subject to natural disasters. In 2005, the year of hurricanes Katrina, Wilma and Rita, catastrophe losses totaled more than $60 billion. Hurricane Katrina caused losses of $41.1 billion, the highest on record, about twice as much as Hurricane Andrew would have cost had it occurred in 2005. If, as suggested, hurricane-related losses grow by as much 40 percent over the next 20 years, a Katrina-like storm could cause $60 billion in losses, or significantly more if it struck a densely populated metropolitan area like Miami or New York City. For more information, read the excellent article at http://www.iii.org/issues_updates/catastrophes-insurance-issues.html.

You may be wondering how to best protect your community and financial investment in these times of climate uncertainty, escalating storm intensity, and more frequent storm prediction. Work with your community association insurer to review where you are most at risk and then purchase adequate insurance to protect unit owners from the potential ravages of a super storm. Schedule a meeting with your insurance broker and discuss your concerns as well as new insurance policies to protect your community association. And if, by chance, your community association is dealt a tragic blow and needs funds to rebuild, HOALendingXchange can help! Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

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