Know Your Condo Insurance
Condo insurance is a necessity. As a condo buyer, you’ll get a condo insurance policy, and the payments will likely be pulled from the escrow account established for your mortgage account. This way, the value of the real estate (and your lender’s stake in it) asset is covered against damage. Your homeowners’ association (HOA) may require a copy of each unit owner’s insurance to keep on file in the condo office as well.
It’s easy enough to get a standard HO-6 (condo) policy from any major company. Still, it’s good to know what you’re actually getting, and what else is available. Here are some points to consider.
The HOA Will Already Have Coverage Through the Master Policy.
A portion of your monthly Homeowners’ Association (HOA) fees go to its master policy insurer. The exterior property and common elements are collectively owned by all unit owners. Therefore, the master policy exists to cover things that impact the entire property. An example is liability for someone who got hurt when using a common amenity. Another example is storm damage that impacts the roof over multiple units. In these cases, the master policy may be tapped for the costs.
Master policies vary. You might have heard the terms “bare walls” or “all in.” Let’s break down the terminology:
Bare-walls master policy: This means the master policy covers damage as far as the drywall, but not inside it. You’ll be covering the floor and wall coverings, plumbing and sinks, cabinets, lighting and fixtures and personal belongings through your individual HO-6 policy. In industry jargon, you’ll be covering all the “walls-in” items. Claims can be made only for common kinds of damage listed in the policy. If you’re buying a condo in an area subject to specific disasters such as wildfires or earthquakes, ask your insurance agent for guidance to help guard your assets against these destructive events.
Walls-in master policy: This master policy covers basic interior damage. It may protect your floors, cabinets and counters, plumbing and electrical fixtures. Your individual owner’s policy protects the custom upgrades you install. You may also hear this referred to as single-entity coverage or studs-in coverage.
All-in master policy: This all-inclusive master policy offers the broadest protection inside and outside the condo units. It covers installations and additions to the interior surfaces of a unit’s walls, floors, ceilings, cabinets and sinks, appliances and light fixtures, and even the improvements made by the condo owner. Even with this all-inclusive master policy, the unit owner will still need to purchase personal property insurance.
The Unit Owner Gets an Individual Condo Policy.
After you identify the type of coverage your master policy provides, you have a good idea of the type of condo owner’s insurance, also called HO-6 insurance, that you’ll need to buy. (Regular houses have HO-3 policies, while condos or co-ops have HO-6 insurance.) The HO-6 insurance generally covers loss of property and liability for legal action arising within the individual condo unit.
The annual policy cost could be anywhere from about $300 to $1,000 or higher. The cost depends on location and various other factors, such as the type of construction and age of the association’s infrastructure. Bundling homeowner’s or condo owner’s insurance with car insurance can usually save a few dollars for the policy holders.
Pro tip: Before buying a condo and paying for your insurance, you can speak with the condo property manager to ask what is considered standard at your property. The HOA governing documents also contain direction, based on state law, on required insurance coverage. Your insurance company’s local agent can offer guidance as to the amount of liability, dwelling, and personal property coverage you need.
To get into a bit more detail, let’s take a tour of the elements of coverage the typical condo buyer might need.
Personal property coverage: You’ll at least need coverage for your own belongings, which the association won’t cover in case of damage or theft. The incident must be listed as covered in your HO-6 policy for you to make a claim. (And first you’ll have to cover the loss yourself, up to the deductible amount.)
You do have choices among personal property coverage types, at different price levels:
- Actual cash value means reimbursement only for the cash value of your items when lost.
- Replacement cost coverage covers the owner for new items to replace what was lost.
- Itemized personal property covers art and antiques and other items that warrant higher coverage that ordinary personal belongings. Items might need to be appraised.
Loss of use: This common component of an HO-6 policy covers hotel rooms and meals and other extra living expenses if fire damage, pipe bursts, or other problems covered in the policy forces the owner to live elsewhere temporarily.
Liability coverage: This protects the unit owner against medical costs and claims by other parties for other damages. It’s important to read the liability coverage carefully, to know what is covered and excluded. This coverage generally starts at $100,000. Is this enough? Keep in mind what you could lose in a lawsuit, and obtain sufficient coverage.
“Extra” Risk Reductions Can Be Vital.
Insurers offer extra coverage options for issues such as water backups or payment of the master policy’s deductible. Here are a few other considerations:
Loss assessment coverage: This can be a cheap add-on but a major help if you ever need it. Loss assessment may cover a deductible for certain damages when unit owners are being forced to pay for the costs of a special assessment.
Note: All unit owners help pay for the cost of the community’s master insurance policy deductible when the insurance is used. You could be billed for the whole deductible if a fire or other calamity started in your unit — in addition to having to find temporary accommodations. Ask your insurer about master policy deductible coverage and loss assessment coverage. An association’s deductible can be tens of thousands of dollars. Don’t be caught off guard.
Flood damage: This is not a component of an HO-6 policy. Owners will need to qualify for federal flood insurance or obtain private flood insurance for a condo, its contents, or both. Be aware that any property can flood in a severe storm or after a multi-day rainfall when the ground becomes saturated.
☛ It’s an unwelcome reality, but a changing climate means changing sea levels, tidal river levels, and water infiltration risks. Deeds.com has more information on climate-related flood risks here.
Landlord insurance: Are you renting out your condo? Get a landlord’s policy that anticipates liability for claims against you, as well as coverage for loss of rent payments if renters must vacate the unit because of anything covered in your policy. Note: An HO-6 policy may not cover units left vacant for a stated period of time.
In Brief…
Condo insurance, officially known as HO-6 insurance, covers what your association’s master policy won’t. This may mean covering liability for someone who is injured in your unit, restoring your unit’s interior after a disaster, replacing your personal belongings after a theft, or taking care of extra expenses if you need to live somewhere else for a time.
A local insurance rep can review a condo’s master policy and local risks — fire, flood, earthquake — to offer guidance to purchasers. It’s a good idea to ask the agent whether the master policy is strong enough to adequately cover the association’s risks, too. As a unit owner, you will be funding the master policy, and you should have informed confidence that the association’s policy is sufficiently protective.
In extreme situations, insurance will not be enough. Architects and engineers may have liability as well. The tragic collapse of the Surfside, Florida condo building is a prominent example of such a case. Condo owners dealing with severe damage should obtain professional legal assistance as soon as possible.
We hope this brief guide to insuring your condo is helpful as you select or make changes to your policy.
Supporting References
Tony Guerra for Home Guides on SFGate.com: What Does a Condo Insurance Master Policy Cover?
Photo credits: Pixabay, and Tima Miroshnichenko, via Pexels.