How often should building coverage limits be reviewed?

Jason Brown
of Homeowners Management Company, LLC asks “How often should building coverage
limits be reviewed?”

Great question. My personal opinion? Annually. Each and every time an association’s policy renews, building values should be reviewed. There are several factors that dictate why and how we purchase insurance. CC&Rs govern many aspects of the insurance an Association maintains, as well as avoiding co-insurance penalties, complying with due diligence, meeting Davis-Stirling Law requirements and attracting buyers. Arguably the most evident and frequent factors for both common interest developments and insurance professionals, are lending requirements.

Most lenders follow Fannie Mae insurance requirements. Fannie Mae requires insurance limits be equal to the amount sufficient to repair the condominium to its condition prior to a loss. To prove these limits are adequate, agents use industry wide online calculating tools such as Marshall Swift Boeckh (MSB). Programs like MSB consider the association location, building materials, square footage, and other construction characteristics to compute an appropriate price per square foot to rebuild. Due to various changes in the real estate market, economy and price of materials, it is best to run a fresh calculation each year to rule out any changes. Lending institutions will often ask insurance brokers for copies of these estimates and the more up to date the report, the better the chance of being accepted by lenders.

If you haven’t seen your association’s insurance value increase in a while, or you haven’t been given any indication the limits have been reviewed, you may want to ask your agent for feedback. Even if lending requirements have yet to be an issue for you and your association, it’s always a good idea to know exactly what you have and where you might stand when, or if, lenders inquire.