Legendary funny man Benny Goodman once said, “I don’t want to tell you how much insurance I carry with the Prudential, but all I can  say is: when I go, they go too!” The comedian hits on all-important issue: how much insurance is too much, and  how much is not enough?  

 While individual residents of cooperatives and condominiums in New Jersey are  encouraged to carry adequate coverage in case of a severe accident or  catastrophe, their boards have a stake in their residents carrying adequate  insurance as well.  

 Cover Yourself

 While some condominium associations offer all-in coverage in their master  policy, the vast majority require unit owners to carry a homeowner's policy as  well. According to insurance industry blog www.InsureOurCondo.com, these  insurance policies usually cover things like accidental discharge or overflow  of water from your plumbing, fire and lightning, explosions, theft, vandalism  and malicious mischief, sudden accidental damage from smoke, and so forth.  

 Unit owners and shareholders need to begin their road to homeowner's insurance  by doing a little homework.  

 “First, homeowners need to go to the bylaws or proprietary lease because those  tell the owner what they should buy as far as what they have to cover,” says Alan Schulman, president at Waldor & Schulman, an insurance brokerage in Livingston. “Is it a bare bones policy where they have to cover the sheetrock in? Some times  the master policy will cover everything including kitchen cabinets and add-ins,  all the homeowners needs to insure is their personal contents. It really  depends on the building and they must read their documents.”  

 Matt McGill, a senior sales executive at The Chadler Group, an insurance agency  in Fairfield, says that after determining what is the responsibility of the  resident, it is crucial to do an inventory of the property and possessions to  come up with a value for the contents and in addition, factor in any  improvements and betterments that were made to the unit. “You have to take into consideration any changes that were made to the unit. The  original condo may have had pine cabinets and you put in oak cabinets. The  policy will only then cover the cost of the pine cabinets if there is damage.  The exact amount is not an easy number to come about, but you need to know the  value of what you have.”  

 Joseph Rice, president of The Rice Agency, an independent insurance agency in  Somerville, says that he frequently encounters homeowners that do not do an  accurate inventory of their possessions or complete any sort of inventory at  all. “Homeowners, whether it's condo or co-op, don't really take stock of their  possessions. They don't do any kind of given inventory, whether it be mental,  photo or written. And if you ask them 'What is all your stuff worth?' you get a  very blank look. If they had done an inventory, they may have done it many  years ago, and the value of their possessions changed,” he says. Rice encourages homeowners not to skimp on costs, because the figures  they provide for the insurance agency will affect the amount they will be  reimbursed in the event of damage or a claim.  

 Schulman adds that residents should only be concerned with replacement costs and  not market value. “You can have the same condo in Short Hills, New Jersey, and the same condo in  Newark and they cost the same to replace but the market value is different. The  insurance is only concerned with replacement costs. Just because you pay a lot  more for something, doesn't mean you will get the same amount back if there is  a loss.”  

 Decoding Insurance Policies

 For board members, who also likely carry dwelling insurance, it is important  they understand what exactly is covered by the association opposed to personal  risk. Less an all-in coverage clause, common insurance coverage normally  applies to common areas, the exterior of the building and energy equipment.  

 “Ideally there needs to be coordination between the association's policy and the  unit owner's policy so that there are not gaps in coverage for something that  the unit owner assumes is association property and vice versa,” says attorney Tom Pryor from the law firm of Stark & Stark, based in Lawrenceville.  

 Pryor continues to say that in addition to covering contents and any gaps in the  association's policy, homeowner's insurance often covers additional living  expenses coverage. “We've had cases where people are displaced from their unit for a year or two and  they have to find another place to live, which can get really expensive.”  

 McGill also recommends that residents also have a loss assessment included in  their homeowner's policy. “Loss assessment covers you for, let's say the condo association has been sued,  and the damage exceeds the association's coverage, then they have the right to  assess that claim and damages against all the homeowners.” For example if the building and commonly shared areas are destroyed by an  insured disaster such as a tornado, the individual unit owner's loss assessment  coverage would help pay for the share of these assessments.  

 Rice suggests a minimum of $50,000 limit of loss assessment which can greatly  aid the homeowner should damage to the association occur.  

 Insurance Not Required?

 In the state of New Jersey, homeowner's insurance is not a requirement for unit  owners or shareholders but “in some communities the governing documents might provide that residents carry  it,” says Pryor.  

 Condo and co-op experts note that unless specified in the bylaws or proprietary  lease, boards are not allowed to know the insurance status of their residents.  This lack of information however, could be problematic. “If the unit owners are uninsured or under insured at the very least, it could  cause some problems for the association as a whole, because there are a lot of  things that may not be fully covered under the master policy. We see the  shortfalls of coverage of accounts that we inherit so it could be a matter of  one party scuffling to see if they can make up the difference from the other.  The ideal situation is to have one agent insuring the association, one agent  writing as many of the unit owners as possible, and, if at all possible,  everybody's with the same insurance carrier at any one moment,” says Rice.  

 He continues to say that although insurance companies do not necessarily look  more favorably on buildings in which more of the residents are insured, they  often want to know how many residents are before they write the building  policy. Even so, Rice notes that insurance companies and lenders are altering  their stance on requiring insurance. “Things are starting to change. I'm starting to see more demands and requirements  in community living than I have in the past.” he says.  

 Renter’s Insurance

 Often a unit owner may decide to rent or sublease for a period of time which  raises additional questions with regard to insurance coverage and who is  responsible. Mia Rodriguez, personal lines manager at The Rice Agency says that  too often when residents decide to rent out their unit they don't even notify  the insurance company, which is a big mistake. “They don't realize that the policy they have is based on a homeowner living  there and they will need a completely different policy when they rent it out  because of higher exposure,” she explains.  

 “Residents have to find a carrier that is willing to accept a condo policy that  is rented out to others, that is a very important endorsement that needs to be  added on. They can't just have a regular condo owner's policy,” adds Chris Gonzalez, general manager at Gonzalez & Company Insurance Agency, Inc. in North Bergen.  

 Residing in a unit versus renting it out slightly changes who is responsible in  terms of insurance coverage. “The homeowner still needs to maintain coverage on the unit as a rental unit,  which is different than if they are living there. Also, the tenant will have to  make sure that they have their own renter's insurance for liability purposes as  well as their own personal property such as clothing and electronics. The owner  will still need to maintain insurance because the unit is deeded to them,” says McGill.  

 When renting out a unit to a tenant, it is important to have a personal injury  endorsement added on says Gonzalez. Personal injury protects the policy holder  from lawsuits filed because of alleged damage to an individual resulting from  the invasion of privacy including damage to someone's character, violation of  personal rights or invasion of space. He gives an example of a unit owner  giving a showing of the unit and not giving the tenant enough notice. The  tenant steps out of the shower to reveal more than they would like to the  prospective and current residents. While this situation seems like a minor  embarrassment, legal action could follow, costing the residents thousands of  dollars. “Personal injury is different from personal liability coverage. Because now, in  essence, the unit owner has become the landlord and the people who are renting  out are the tenants, so there is a whole host of other issues that arise,” Gonzalez explains.  

 Industry experts agree that whether it is required or not, homeowner's insurance  is an important investment for residents living in condominiums and  cooperatives. It can provide the peace of mind and financial security for both  boards and residents in case damage does occur.   

 W.B. King is a freelance writer and a frequent contributor to The New Jersey  Cooperator. Editorial Assistant Maggie Puniewska contributed to this article.