In response to legislative changes in 2018, a self-insurance fund has become mandatory for all condominiums as of April 15, 2022. This fund plays a crucial role in ensuring the financial security of the condominium and protecting owners from unforeseen financial burdens. Here’s an overview of everything you need to know about the self-insurance fund.
What is a Self-Insurance Fund?
A self-insurance fund is established within a condominium to address situations where a condominium syndicate’s financial management might fall short, especially when dealing with large insurance deductibles. In some cases, these deductibles can be tens of thousands of dollars depending on the nature of the damage. The fund is created to build a reserve that can be quickly accessed in the event of a disaster, preventing the need for sudden assessments to cover unexpected expenses.
Purpose of the Self-Insurance Fund
The primary purpose of the self-insurance fund is to cover deductibles following a disaster. These deductibles can relate to the building’s insurance, the syndicate’s liability insurance, or the insurance covering the board’s directors and members. The fund can also be used for property repairs if the costs exceed what is covered by insurance, particularly in cases of underinsurance or when there are exclusions or limits on the policy.
It’s important to note that the self-insurance fund cannot be used for regular maintenance or administrative expenses. Its function is strictly to cover disaster-related costs and ensure that co-owners are not faced with unexpected special assessments.
How Much Should Be Set Aside?
The amount required for the self-insurance fund is determined by the deductible amounts for the building’s insurance policies. The fund should ideally be enough to cover the highest deductible across all insurance policies held by the condominium. However, deductibles for earthquakes and floods are typically excluded from this calculation, even if these coverages are included in the policy.
Minimum Contribution from Co-owners
Each year, the board of directors sets the required contribution from the co-owners to the self-insurance fund as part of the condominium’s budget. The amount is based on the fund’s current capital and the required legal contributions. There are specific rules for determining how much each co-owner must contribute:
- If the self-insurance fund’s balance is less than or equal to half the highest deductible, the contribution must equal half of that deductible. For instance, if the deductible is $40,000, the total contribution would be $20,000.
- If the fund’s balance exceeds half of the highest deductible, the contribution required will cover the difference. For example, if the deductible is $40,000 and the fund already has $25,000, the contribution would be $15,000.
- If the fund already meets or exceeds the highest deductible, no further contributions are required.
Can the Contingency Fund Be Used for the Self-Insurance Fund?
The contingency fund is a mandatory reserve used for repairs or replacements in the building’s common areas. While both funds serve different purposes, a common question is whether part of the contingency fund can be used to establish the self-insurance fund. The answer is no. The contingency fund can only be used for repairs and replacements in common areas, so it cannot contribute to the self-insurance fund. To avoid confusion, it’s recommended that the condominium open separate bank accounts for each fund under the syndicate’s name.
Is the Self-Insurance Fund Refundable Upon Sale?
No, the amounts accumulated in the self-insurance fund are owned by the syndicate and are not refundable to co-owners when they sell their units. Additionally, the self-insurance fund is protected from being seized by creditors unless the creditor’s judgment directly relates to the funds.
