What is Cooperative Insurance?

Cooperative (or co-op) insurance is a type of property-casualty insurance for owners of co-op apartments (or other cooperative organizations). These policies generally cover losses to their building or individual units.

For residential co-ops, this type of coverage includes burglary, fire damage, and liability, among others. Generally, a co-op building provides coverage for common areas such as the hallways, foyer, basement, roof, elevator, and common walkways. The co-op association's insurance policy generally protects the building, not the individual owners' apartments, unless the damage occurs as a result of something under the association's jurisdiction.

key takeaways

  • Cooperative (co-op ) insurance is offered by co-op organizations to cover loss or damage to units.
  • The most common sort of cooperative insurance is property insurance for residential co-ops, and it covers the common areas of the building.
  • Any member-owned organization can offer cooperative insurance.
  • Health cooperatives are formed to offer health insurance.

Understanding Cooperative Insurance

Purchasing cooperative insurance lets policyholders pool together with others who have similar risks to purchase more extensive coverage at a more affordable rate. For instance, trade unions will often offer some form of co-op insurance, since there may be certain risks that everyone in the union is exposed to, and it makes economic sense to purchase coverage as a group. The typical model for a cooperative is everyone involved in the cooperative that pays for the insurance receives a portion of ownership of the policy that is proportional to how much they pay. So, those who pay for 5% of the total policy would receive 5%ownership.

In the case of residential buildings, it is advisable to find out what the building association's insurance policy covers. When you buy a co-op apartment (a housing unit of which you hold a share of the corporation that owns and manages the unit), the building will already have an insurance policy that protects itself and shareholders for claims resulting from lead paint exposure, sewer backups, earthquake damage, and other events that might affect the entire structure.

An individual shareholder's apartment and belongings aren't directly covered by the coop association's policy. There might be exceptions, however, if some sort of damage is caused by an occurrence that does fall under the building's policy. Usually, this is something relating to its infrastructure. For example, if a leaky radiator damages the floor within a unit, or a dripping water pipe causes cracks in the ceiling, the building might shoulder the cost of repairs.

To ensure coverage of their personal belongings and liability for injury or damage to others, individual shareholders should buy their own policies. Basically a type of homeowners' insurance, these policies can (confusingly) also be referred to as co-op insurance.

Cooperative Insurance and American Healthcare

In the debate over U.S. healthcare reform, healthcare cooperatives have been posited as an alternative to both publicly funded healthcare and single-payer healthcare. The Obama administration brought up cooperatives as a possible model for universal healthcare in the United States. As proposed, this future health insurance cooperative would not be run or owned by the government, but it would instead receive an initial government investment and then be operated as a non-profit organization.

There once were numerous rural health cooperatives established by the Farm Security Administration (FSA). Most of them closed or merged over the years because they lacked a sufficient economy of scale. Still, health insurance co-ops continue to exist in many states across the United States. They are often formed by employers with something in common; for example groups of farmers in Arizona or small business owners in Minnesota.