INSURANCE GUIDE
Condominum at pond
Guide to condominium owners policy or “condo insurance”

Whether you’re a first time homebuyer looking for a low maintenance bargain or you’re searching for a vacation getaway, condominiums and town houses can be a great investment. You just have to know how to protect them. The insurance policy for your condo is often categorized under Homeowner’s form 6 and is similar to a normal homeowner policy. Condo owners have specific considerations that need attention.

Insurance Responsibility

When you purchase a condo, you own an individual unit in a building that is owned by someone else but you still have an interest in common areas. Because there are multiple invested interested in a condominium complex, insurance is held by two parties. The HOA is responsible for securing what’s known as the master policy. This includes both property and liability coverage and protect the entire structure of the main complex. This means that the majority of your condo structure is already insured but there are certain parts that are not and this is where many condo owners get into trouble.
They might assume that since the HOA possesses a master policy, the only thing that requires insurance is their personal belongings. Not true! Be sure to read the fine print to see what your HOA master policy covers because it may not be as much as you think. You will find this in your HOA documents as a declaration policy.

So What Does the HOA Master Policy Cover?

When the HOA policy says structure, it means the bare bones structure. Walls and floors at minimum. That means that if you purchase only a basic condo insurance policy with say, $5,000 worth of building coverage, you’re leaving yourself vulnerable to a great amount of property loss if a big fire breaks out. Here are a few examples of common exclusions in your building coverage:
  • Curtains
  • Carpet
  • Hardwood flooring
  • Cabinets
  • Countertops
  • Tile
  • Wall coverings
  • Built in appliances
  • Sinks and tubs
  • Doors
  • Lighting
  • Upgrades
  • Decks
Just because it comes with your unit, don’t assume that it’s covered.

The Four Important Parts of Condo Insurance

When you go to purchase condo insurance, be sure to take a closer look at these four coverage areas:
  1. Coverage A: protects damage to the unit structure
  2. Coverage B: protects detached buildings like sheds
  3. Coverage C: protects belongings
  4. Coverage E: liability coverage: protects injuries and property damage you cause

Coverage A

When you look at this portion of your policy, it’s essential that you know how much coverage your master policy provides. This number will help determine how much personal building coverage you need to purchase. It can be tedious but you need to figure out every single item that is excluded from the master policy and then find out how much it would cost to replace said item + labor. It might be a good idea to enlist a spouse or friend during this process so you don’t overlook anything important. If you have a question about something, ask your HOA agent if that is specifically covered. When you come up with the grand total, round the number up by 20%. You may be shocked at the amount of structural coverage you actually need.
To protect all of that under any circumstance, purchase special perils coverage instead of broad form. Broad form is normally standard with all homeowner policies but will only cover structural and personal belonging loss under a few different specific circumstances and some of them are likely to never happen. It’s not very often that your 8th floor condo will be damaged in a riot. While special perils still comes with some exclusions like floods and earthquakes, the range of covered loss is much larger than broad form.

Coverage B

Condo owners may not need to pay as much attention to detached structure coverage as townhome owners should. Many townhomes come with garages and backyards that might have storage sheds. This can be a huge draw for buyers but it’s important to know who pays for it in the case of a disastrous fire or devastating flood. If you find that you’re responsible for your detached structures, look at where they’re located to see where to increase coverage. If your garage or shed is physically attached to your townhome, you need to purchase more of Coverage A and make sure it’s at replacement value. But if your garage or shed is separated from the main townhome, increase Coverage B and check to see if there are any loopholes or exclusions for items stored in either structure.

Coverage C

This form is what most condo owners are familiar with but some may still find themselves underinsured with a basic policy. This checklist can ensure you have the right amount of coverage:
  • Buy replacement value coverage.
  • Buy a coverage limit high enough to cover all belongings.
  • Purchase special perils to protect yourself against more causes of loss.
  • Make an inventory of all valuable items
  • Schedule anything that is of extremely high value.

Coverage D

Some believe that liability is the most important part of a homeowner policy. It protects you in a variety of situations and travels with you. To determine how much you need, consider how much you could lose. If someone sues you, liability insurance will pay for court costs, legal fees, and any judgments that are ruled against you. The more you’re worth, the more likely you are to be sued. $300,000 is a good place to start but if you’re a multi-millionaire with a penthouse condo overlooking the ocean, buy the maximum amount of liability insurance and consider an umbrella policy. When it rains, it pours.
Condos are a great idea for many people because they still provide all the benefits of home ownership. You get to enjoy your investment while not having to worry about cleaning the pool every week or replacing the heat pump. It might just be the best of both worlds but make sure you protect yourself or you could find yourself floating in a space known as the insurance gap zone.