In many ways, buying a condominium offers fewer headaches than owning a single-family home: you don’t need to take care of yard work or snow removal, nor do you have to handle major maintenance issues on the building itself.
However, not everything about condo living is easier. In particular, figuring out how to adequately insure your home is a much more complicated prospect when you own a condominium.
Here’s what you need to know about homeowner’s insurance for condos:
Know the Master Policy
Part of the confusion with condo insurance comes from the fact that the building itself is covered by the condo association’s master policy. These policies are paid for by your association dues, and they cover any part of the complex that’s owned in common — from building exteriors and hallways to common rooms or pool areas.
The master policy doesn’t cover any individual unit, however, since the owner of that unit is expected to have their own insurance for the contents.
How much insurance you need for that depends on what type of master policy your association has. There are two types: bare walls-in, which only covers the structural aspects of any particular condominium unit, and all-in, which covers the structure and any fixtures that come standard in the condo, like countertops and light fixtures.
If your association master policy is a bare walls-in variety, that means you’ll need more coverage, since you’re responsible for everything within your unit other than the bare walls and floor.
Know the Association Deductible
Another piece of the puzzle is how high the master policy deductible is. If there’s an insurance claim through the master policy, the condo residents are expected to equally share in the cost of the deductible for that claim.
Oftentimes, these deductibles can be quite high – between $10,000 and $50,000. Spread across the total number of owners in the building, that becomes much more manageable, but it’s still a cost you’ll have to factor in. You can add a deductible assessment coverage rider to your condo insurance to provide you with enough coverage to handle your portion of the deductible.
In addition, it’s important to understand the bylaws of your condo association when it comes to that deductible. Some condo associations will make individual owners responsible for the entire master policy deductible if the loss began in their unit. For instance, the owner of the unit that the pipe burst which then floods the building is going to be responsible for the whole deductible.
Know the Value of Your Possessions
One aspect of condo insurance that’s similar to homeowner’s insurance is the importance of adequately insuring your belongings. It’s helpful to have your valuable possessions specifically itemized and appraised so that you can know exactly how much coverage you need for the contents of your condo.
In addition, don’t forget to consider the costs of any upgrades you’ve made to your condo. This includes the installation of carpet/flooring, cabinetry, countertops, etc. Even if your master policy is an all-in policy, anything that you do to improve your home is on you to insure.
The Jargon of Any Homeowner’s Insurance Applies to Condo Insurance Too
While we are talking about condo insurance, it’s worth it to go over some of the terms you’ll come across. After all, I get asked these same questions about homeowner’s insurance over and over. There’s a good reason though. There are some parts of a homeowner’s policy that can be downright confusing.
Let’s talk about them.
Your Dwelling Coverage Amount
When you’re insuring your home, you’re not just insuring the loan from the bank. What you’re actually covering is the amount it would cost to rebuild your home in the event of a total loss. In today’s housing market, this amount is usually quite a bit more than what you paid for your home.
A replacement cost estimator is performed to determine the rebuild amount. This factors in all of the building materials and features of your home. It’s important to let your agent know if there have been any big renovations or updates, so they can factor those into the cost as well.
If your home was built pre-1930s, then the amount of coverage may be substantially higher. The reason for this is that the building materials used in a pre-1930s home are more expensive than the materials used in modern homes.
Replacement Cost vs. Actual Cash Value
In order to lower their premium, a lot of consumers make the mistake of taking out an actual cash value policy, rather than a replacement cost policy.
The replacement cost is pretty much self-explanatory. In the event you need to file a claim, you’ll be reimbursed the replacement cost of the damaged items or area, minus your deductible.
With an actual cash value policy, you’ll get replacement cost minus depreciation. This means that in the event of a claim, you’ll be paid much less than if you had replacement cost. When you go to replace or repair your items, the difference will come out of your pocket.
Endorsements
Most homeowner’s policies don’t cover water back-up from sewers or drains, earthquakes, fungi, or mold without a specific endorsement (add-on) added to your policy. Depending on where you live, these can be important coverages. If you have a finished basement, water back-up coverage is highly recommended.
If there are certain coverages you’re worried about not having, you need to talk to your agent.
Deductibles
Your deductible is the amount you have to pay in the event of a claim. Your deductible is subject to every claim you file.
For example, you have roof damage in the amount of $5,000. You have a $1,000 deductible, so the insurance company pays you $4,000, and you cover the other $1,000.
If you have damage that totals $1,050, and you have a $1,000 deductible, the insurance company will only pay you $50. In this instance, you shouldn’t file a claim. Filing a claim will make your insurance increase, and it’ll stay on your record for 3-5 years. The $50 claim wouldn’t be worth it.
Homeowner’s insurance can be a bit tricky, which is why you need an insurance agent you can trust. Be sure to review your policy at least once a year to make sure you have the coverage that you need.
What other questions do you have about homeowner’s insurance?
The Bottom Line
The thick sheaf of association documents you receive when you buy a condo is something you really need to hold onto and study. This will help you determine what your insurance needs are. When you meet with your insurance agent, bring along the association documents so that you can make sure you’re getting adequate covereage.
For those of you living in condos, what type of insurance do you have?
{ read the comments below or add one }
I think that home insurance is a must, no questions asked. But at the same time you probably shouldn’t hurry with getting the home insurance straight away. I feel that one should consider the cost/benefit of the home insurance before signing one. I almost made a mistake like that once, I almost signed a home insurance policy that wasn’t right for me and i could have spent a lot of money for nothing.