Should I Stay or Should I Go? How Good is Your Co-op or Condo Policy’s Loss of Use Coverage

There are approximately 3 million New Yorkers living in New York City’s 6 hurricane evacuation zones. This fall, should a Class 1 hurricane (74 mph) make landfall New York City will order the evacuation of those living in the most flood prone area (Zone 1) at least 48 hours before landfall.

About 375,000 people were so affected in 2011 and 2012 when tropical storms Irene and Sandy approached. If the storm is rated a Class II hurricane (96 mph) over a million people will be affected because Zones 2 & 3 will be impacted. New York City’s evacuation shelters have a full capacity limit of 600,000 people. If a Class III hurricane makes landfall, as one did in 1938, about 3 million people could be looking for alternative housing both during the evacuation and aftermath. Sandy was a trial run!  (For an estimate of residential disruption on Long Island see http://www2.sunysuffolk.edu/mandias/38hurricane/hurricane_future.html ). 

 Loss of Use Coverage:  Additional Living Expense

If you can’t live for free temporarily you will have to rent or pay for a hotel if you can find a vacancy. Will your co-op or condo unit insurance policy pay these additional rental and living expense costs due to the loss of use of your unit? As is unfortunately the case with insurance policies: the answer is maybe. 

This is why you don’t just buy a cheap policy. You should buy one that offers good Coverage C— Loss of Use. For the purpose of this article, I will not address coverage of loss of sublet rents due to either property loss to your unit or because of an evacuation. There is some coverage for this.  

If your unit sustains direct physical damage from a covered peril (e.g., wind, fire, explosion, but not flood) you can recover under your co-op/condo policy in excess of your deductible (including any hurricane deductible) for reasonable additional living expenses and fair rental value up to a sublimit or for a certain time period to make your unit habitable. When a sublimit is used by the insurer, it is often between 50%-100% of your contents limit. Depending upon the insurer, you may not be able to inflate your contents limit to obtain a higher loss of use limit, so you need to shop. When a time period is used to limit this coverage it can be for reasonable actual loss sustained up to a maximum of 2 years. This is a preferable approach, but some insurers are not offering it or are offering a limited period up to 1 year. This can be a substantial reduction of coverage given rental and hotel costs in the metropolitan area, particularly during a crisis. Conservatively estimate this expense and your actual rental area need and choose the best loss of use coverage for you. State Farm is one insurer that still provides actual loss sustained up to 2 years, which is good. There are however limitations for all insurers. 

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Comments

  • Gjoseph156@hotmail.com on Saturday, October 08, 2016 11:32 AM
    Is Ordinance or Law insurance required in NYS for co-ops. I am being turned down for refinancing my mortgage because our bldg. does not have this insurance. Is it mandated for co- ops? They have all other required insurance.