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Why do I have to pay for a Certificate of Insurance Annually for my Condo or Townhome?
Many owners may receive notice from their Bank or Mortgage Company each year requesting a certificate of insurance to provide proof of coverage. Upon contacting the management company, many of you have been charged a small fee for obtaining this information, and are upset and/or confused by this process.
To help eliminate confusion we would like to explain why you are being charged for the information.
- The homeowner is not the customer of the insurance agent – the association is. The Master policy is a business policy – not a homeowner’s policy.
- The homeowner and its mortgage company cannot be listed as additional insured on an Association’s insurance policy, allowing for automatic notification from the insurance company to the Mortgage lender. The reasoning is that if a loss occurred in a 10 unit building, all 10 unit owners and their mortgage companies would have to sign off on the claim/check before repairs could be made – which is almost impossible to get done. Therefore insurance companies do not allow it.
- If the homeowner is receiving requests from their mortgage company for insurance information – the homeowner can avoid this in the future by purchasing an HO-3 Townhome policy. However this contract coverage the structure thus providing double coverage along with the master. The HO-3 contract is extremely broad in coverage and many times can be purchased for the price of the HO-6 condo policy. The HO-3 policy can only be purchased for a deeded lot property.
- a) We’ve found that some home owners purchase HO-4 (tenant) policies. This is incorrect. The HO-6 condo policy is the proper purchase to cover the interior. Most important with this contract is the need for additions, alterations, and betterment coverage. This is needed to cover all the alterations that do not come with a base unit. Example: hardwood flooring, ceiling fans, upgrades in cabinets, mirrors, upgraded carpeting, additional fixtures, etc. The HO-6 insurance policy also provides additional living expense or loss of use coverage. The HO-6 contract is primarily used to cover all your personal property and upgrades. The HO-6 all-risk contract should be purchased, as this contract provides gap coverage, this is handy if occasionally a sliding door, or some part of the structure may not be covered on some of the old master policy contracts.
- b) These particular policies HO-6 and HO-3 provide protection to the owner in case of loss, and will restore the unit to the state it was in at the time of loss (granite, hardwood, upgrades, etc.), providing additions and alterations coverage is endorsed to the HO-6.
- c) The condo policy also allows the unit owner to list their mortgage company as additional insured or certificate holder, but you may still experience a request from your mortgage company for the master policy since this contract will show additions/alterations, betterments, dwelling, but not the structure dwelling amount. The HO-3 contract will completely eliminate the yearly insurance requests from the Mortgage Company since you can add the mortgage as additional insured. Remember the HO-3 townhouse policy requires a deeded lot.
Why should the homeowner, not the association, pay for a resale or proof of insurance package? It wouldn’t be fair for all owners to pay for resale or insurance certificates through their maintenance fees, since the average annual turnover of homes in a community ranges from 10 – 20%. Just as an association should not pay for Realtor commissions, real estate processing fees, etc. that pertain only to one home, so should it not be responsible for the preparation and issuance of resale packages or certificates of insurance for an individual owner.