Determining the Required Coverage Amount

Property insurance must be in an amount at least equal to 100% of the replacement cost value of the project improvements, including common elements and residential structures.

An insurance policy that includes any of the following coverage, either in the policy language or in a specific endorsement to the policy, is acceptable:

• Guaranteed Replacement Cost,

• Extended Replacement Cost, or

• Replacement Cost.

When the underwriter must verify the coverage amount is not less than the minimum required as described above, the verification source may be the property insurer, an independent insurance risk specialist, or other professional with appropriate resources to make such a determination.

Master Property Insurance Policies with Coinsurance

Policies with coinsurance provisions can create additional risk for an HOA in the event of a loss if the amount of insurance coverage is less than 100% of the replacement cost value. Master property policies that provide coverage at 100% of the replacement cost value of the project improvements, including the individual units, alleviate the risk of a coinsurance penalty being applied in the event of a loss.

If the policy has a coinsurance clause, inclusion of an Agreed Amount Endorsement or selection of the Agreed Value Option (which waives the requirement for coinsurance) is considered acceptable evidence that the 100% replacement cost requirement has been met. If an Agreed Amount / Agreed Value provision is used, the Agreed Amount must be no less than the estimated replacement cost value.

If the policy includes a coinsurance clause, but the coinsurance provision is not waived, the policy is still eligible if evidence acceptable to the underwriter confirms that the amount of coverage is at least equal to 100% of the replacement cost value of the project improvements. This evidence (documentation) must be maintained in the loan file.