Too often I’m faced with condo associations that make a critical mistake when insuring their properties – they simply renew without looking. It’s critical because in many cases, policies are renewed year after year without regard to changing property values, changing conditions, aging equipment and facilities, or changing occupancy levels.

And in today’s uncertain real estate market, those criteria could mean you’re either under-insured and assuming more risk than you need to or you’re paying for too much coverage. Let’s look at it from an under-insured perspective. Suppose your association purchased a new policy five years ago. At that time, the property consisted of three buildings, a pool, and six acres with a paved walking trail. The property value then was $1.2 million.

Since that time, your association has built two new residential buildings and added an exercise facility and community room. The property value today, even with a dip in real estate prices, comes in at $2 million. Your insurance policy is still capped at $1.2 million, leaving $800,000 of your property value unprotected.

That’s not all. Your policy has a 20 percent deductible. For the sake of argument, let’s assume a hurricane and ensuing flood destroyed your entire property. Under your existing insurance policy, your condo association is left to pay a $240,000 deductible on the original amount of $1.2 million in coverage. However, since no coverage is in place for the additional property, your association is also on the hook for the remaining $800,000. If you’d increased coverage, your total deductible would have been $400,000. Instead, your association’s total out-of-pocket expense is $1.04 million.

Likewise, your association may be paying for coverage it doesn’t need. Suppose your association property is sitting in a region hit hard by the housing market collapse. Your original $1.2 million value has dipped to $800,000 and your occupancy levels have plummeted to 30 percent. Not only are you carrying – and paying for – $400,000 too much in property coverage, you aren’t carrying enough protection to offset lower occupancy levels.

Don’t assume that the status quo coverage still fits. If you haven’t reviewed your coverage in the last year, call me.

Because of their unique legal structure, Community Associations require special insurance forms to cover both Property and Liability risks of loss.