Issue 55 – Risky Business

Everyone knows you need insurance for your home, but what kind of insurance, how much coverage is necessary, exactly what coops and condos will cover for their owners, and what banks will insist upon for lending to buyers all remain a more nebulous concern. Add to this mix the simple fact that New Yorkers are literally and figuratively living on top of one another, renovating apartments, prone to increasingly freakish weather, subject to fluctuating home values and countless other factors, and you have an even more confusing question of how much risk to assume and what to do if and when the unthinkable happens.

Take a deep breath and start by knowing precisely what is covered by your building’s master insurance policy. Since every building’s policy varies to different degrees, don’t always believe the standard-issue theory that owners are responsible for everything from the walls in and the subflooring up applies. However, it is safe to assume that any upgrades or renovations done to an apartment since the original conversion to coop or condo ownership will be the responsibility of the owner, and it’s an even safer bet to discuss any proposed renovations in advance with one’s insurance agent. Furthermore, in a city where storage units are at such a premium and sometimes sell for the cost of a studio apartment, it is essential to know the extent to which a building will provide for the safety of valuables kept there. This information is most always spelled out in an offering plan or readily available from a managing agent. Aside from what may or may not be covered by the building, it is imperative that a policy cover enough to entirely rebuild and refurnish a home if it were destroyed. Doing a walk-through with a trusted contractor is a good way to gauge an estimate of replacement coverage, but be sure to note any unique or costly details that add to your bottom line.

Next, determine what is the minimum level of liability insurance required by your building. Specifically, for damage caused by you to another apartment (ex: a faulty dishwasher or washer-dryer floods your downstairs neighbor’s unit), one needs to know how an insurance policy handles everyday accidents, injuries to guests and other mishaps. As a rule of thumb, it is a good idea to have liability protection even if your building doesn’t require it. Most lenders require that your insurance policy be at least 20% of your mortgage payment–though this usually doesn’t include liability insurance. While liability limits generally start at approximately $100K, many experts recommend the purchase of at least $500K worth of protection. Equally noteworthy is the difference between “Actual Cash Value” and “Replacement Cost” coverage of personal items. For heirloom furnishings, artwork, jewelry and the like, Replacement Cost Coverage pays you the amount of money one would need to purchase an item to replace the old one. Actual Cash Value only provides for what you would get if you sold your valuable today and is most often a significantly lower amount. For the same reason it makes sense to opt for a higher deductible to lower the premium, the extra charge for Replacement Cost Coverage truly pays off.

Thinking back to when Hurricane Sandy displaced residents of lower Manhattan for months at a time, an insurance policy must also cover additional living expenses or loss-of-use to reimburse owners for hotels bills, restaurant meals and other costs incurred while rebuilding. Some policies give a specific dollar amount while others give an unlimited amount, but only for a limited time. Floods, fires and earthquakes (lest we forget that we actually had one here in 2011) as well as theft are all reasons enough to get insurance, but how you’ll be treated in a period of recovery is also important to consider. Also, because renters comprise a significant portion of the city’s population, it cannot be emphasized enough that a landlord’s insurance policy will not cover a tenant’s possessions. Renter’s Insurance is far less expensive than many realize: a standard $300 yearly policy insures approximately $50,000 worth of property.

In the world of insurance, the choices and questions are many–but the need is singular. If home ownership is one’s most important investment, being certain that this is protected without question is a close second.