Published December 18, 2024
New Condo Insurance Rules: What You Need to Know
Buying or selling a condo just got a bit more complicated. New condo insurance requirements are shaking things up, but with the right information, you can navigate these changes like a pro. Let’s break down what’s happening in simple terms—no confusing jargon, just easy-to-understand explanations.
Insurance Must Cover Full Replacement Costs
If something happens to the building, the insurance must cover the full cost to rebuild it, not just the depreciated value (the "used" value of the property). Policies with Actual Cash Value (ACV) coverage—which factors in depreciation—are no longer acceptable. Instead, all claims must be settled on a replacement cost basis, ensuring the building can be fully restored.
Full Coverage Required
Insurance policies now need to cover 100% of the replacement cost value of the property improvements. If the replacement cost is $5 million, the policy must reflect that exact amount.
Deductibles Have Limits
A deductible is the amount a policyholder pays out of pocket before insurance kicks in. The new rules cap deductibles at 5% of the total insurance coverage for each occurrence and each unit. For example, if the coverage is $2 million, the deductible can’t exceed $100,000.
Inflation Guard Coverage
If available, policies must include Inflation Guard Coverage. This automatically adjusts the policy to account for rising construction costs, ensuring that coverage keeps up with market changes.
Insurance Must Cover Full Replacement Costs
If something happens to the building, the insurance must cover the full cost to rebuild it, not just the depreciated value (the "used" value of the property). Policies with Actual Cash Value (ACV) coverage—which factors in depreciation—are no longer acceptable. Instead, all claims must be settled on a replacement cost basis, ensuring the building can be fully restored.
Full Coverage Required
Insurance policies now need to cover 100% of the replacement cost value of the property improvements. If the replacement cost is $5 million, the policy must reflect that exact amount.
Deductibles Have Limits
A deductible is the amount a policyholder pays out of pocket before insurance kicks in. The new rules cap deductibles at 5% of the total insurance coverage for each occurrence and each unit. For example, if the coverage is $2 million, the deductible can’t exceed $100,000.
Inflation Guard Coverage
If available, policies must include Inflation Guard Coverage. This automatically adjusts the policy to account for rising construction costs, ensuring that coverage keeps up with market changes.
These updates affect whether a condo can qualify for financing. Without proper insurance, lenders may flag the property as ineligible. That could delay or even derail a sale.
1. Talk About It Early
Transparency is key. Discuss these insurance requirements with your realtor or clients at the start of the buying or selling process. Addressing potential challenges early can save time and prevent surprises.
2. Request the HOA Insurance Documents
Ask for the HOA (Homeowners Association) insurance declaration page as soon as possible. Sellers can get this from the HOA or the property manager. Buyers should request it to confirm the property meets the new insurance requirements.
3. Check With the HOA
Some HOAs may not know about these changes. A quick conversation with the HOA or property manager can ensure their insurance policies align with the new guidelines.
4. Work With an Informed Lender
Partner with a lender who stays updated on these changes. Lenders like FirstBank Mortgage are actively monitoring new requirements and can flag potential issues before they cause problems.
