So you’re settling in, having just bought your first condo. This is a big investment into your future, and you feel like it was the right choice for you. You get to enjoy all the benefits of owning your first home without the associated headaches of maintenance that come with it. You know your HOA (Home Owners Association) coverage or “master policy” offers your entire community some level of coverage. You are correct, but it might also offer you a false sense of security — HOA coverage is often inconsistent at best.
Condo insurance can be daunting and seem unnecessary. Some may think they have no use for it and wrongly assume HOA coverage to be sufficient. Others have found out that getting condo insurance is requisite for their HOA. And finally, there are those who know they need the peace of mind that complete coverage offers.
What is condo insurance?
Condo insurance comes in two forms:
HOA coverage or “Master Policy” pertains to the building exterior and common areas. Common areas include clubhouses, playgrounds, swimming pools, sidewalks, shared parking lots, and so on. The main nuance to understand is what it doesn’t cover, which is things in the interior of your apartment or potential liability that may occur therein.
Condo insurance (HO-6) is insurance coverage for the interior of your residence, your personal property residing within your unit, and liability insurance if you’re personally sued. The main thing to understand about the designation HO-6 is that it denotes what the policy will and will not cover.
Is condo insurance required?
The short answer: it depends. The long answer is many HOAs require condo insurance, so in those instances, it is. Other HOAs may not require it. Even if it isn’t required, you’ll want to consider it anyway in order to have peace of mind against life’s potential disasters.
In fact, post-Great Recession, more and more HOAs are requiring HO-6 insurance. HO-6 coverage is also a requirement for certain home loans if the master policy does not cover the interior of the unit.
What does a condo association’s insurance policy cover?
The big one is exterior damage such as storm damage, roof damage, siding damage, exterior window damage, damage on the grounds of the building, or damage to exterior common areas. This also covers all common ground areas in the exterior and interior — anything that would pertain to the building itself as opposed to an individual unit. Finally, it also covers personal liability that occurs in common areas. So, say a visitor to an apartment complex slips and falls in a common area or the parking lot; this would be covered by the condo association’s insurance.
There are three levels of possible coverage an HOA can offer:
Bare walls coverage: Bare walls coverage is limited to only the most basic structures of the building. This includes things like common ground furnishings and fixtures. This does not cover things found within your unit.
Single entity coverage: Covers the basic structures of the building, things found in common grounds, and fixtures in your individual unit. They do not cover any of your personal property, or any of your personal renovations or the unit.
All in or all-inclusive policies: Covers the basic structures, things found in common grounds, fixtures in individual units including upgrades made by you or by the prior owner. This does not include any of your personal belongings!
The largest difference between your condo association’s policy and an HO-6 policy is that with the HOA’s policy, personal liability or personal property insurance is not covered for anything that occurs within the interior of your apartment.
What does an HO-6 insurance policy cover?
Condo insurance is defined by what it does and does not cover. Let’s look at the scope of an HO-6 policy so that we don’t assume it is blanket coverage.
Personal property / theft protection
The big one that comes to mind is personal property. This covers the personal property that resides within your apartment. One thing to note that isn’t exactly intuitive is that this covers personal property up to a limit. If your condo is filled with high value items, you may need to get separate insurance for those pieces. These policies can cover things like high value jewelry, electronics, or firearms.
Personal liability insurance
This protects you against personal lawsuits from accidents that occur in the interior of your unit. If someone gets hurt and looks to sue, this is the insurance that covers that. This will cover the cost of the suit and the associated medical expenses.
Unit coverage
This provides coverage against fire or smoke damage, storms, vandalism, and plumbing bursting.
Special or loss assessment coverage
This helps you pay unexpected fees that are your responsibility. When additional costs shared by the constituents of the condo association creep in, you’ll be glad you have this. Note that this will only cover costs not covered by the HOA coverage.
Additional living expenses
This is the cost of lodging and living that may come up in the event your unit becomes uninhabitable. Reasons could include needing to fumigate, rebuilding after fire, or clean up after a pipe bursts.
What’s not covered
Regional hazards
Earthquakes, nuclear hazards, your unit being swallowed by a sinkhole, etc. If you live in an area susceptible to environmental hazards, you may want to take out a separate policy to protect yourself.
Damage from city sewer lines
Where your policy covers pipes bursting internally, some do not cover sewer lines backing up and causing flooding. Again, this is a place where an additional policy against flooding would cover these costs.
Routine wear and tear
This shouldn’t come as a surprise, but if things begin to break down as a function of neglect or regular use, then it is your problem, not the insurance company’s. You are ultimately responsible for maintaining your unit and preventing the preventable.
Intentional injuries to others
If you trip and accidentally stab your friend with scissors, then your liability insurance will be there to pay for the damages. But if you stab your friend because they looked at you wrong, you’re the one who’s liable.
Master policy deductible coverage:
Most condo association communities carry a group master policy that, in the event coverage is needed, gets covered by all members. For example, say that a hurricane blows on by and damages the roof of your condo, requiring repair. If you have 30 members in your HOA and the deductible is $6000, that leaves each member with $200. Some policies will offer coverage for these community deductibles.
A note on named perils
Named perils are listed within your insurance contract and are, as the name suggests, explicitly named perils. This can be things like fire or lightning, hail or wind, riots, explosions, a plane falling through your roof, smoke, a car in your living room, or falling objects. Just as important as the named perils that are covered are the things not named. On a named peril contract, unnamed occurrences are explicitly not covered. Some of these can be covered by other means on a separate policy.
What are add-ons/endorsements?
Condo insurance add-ons or endorsements are supplementary contracts meant to insure things that are not normally covered. Some of the most common are swimming pool coverage, equipment breakdown coverage (EBC), buried utility coverage, extended reconstruction costs, and foundation water back up. These are separate insurance policies that supplement your main coverage.
How much do you need?
It depends. It can be contingent on things like the size of your apartment, the location relative to weather hazards, and in what state you are located. The average condo insurance is $506 per year. But that can vary vastly based on your zip code. Another thing to factor in is the worth of your valuables, preferably rounded up to the nearest $10,000, to make sure you have the coverage you need. Thankfully, loss assessment is included in some condo insurance policies making this task a bit easier. Ultimately, you need enough to cover your assets, your condo, and what you stand to lose in the unfortunate event of lawsuit.
How to save
Saving is easy when you combine multiple policies. A lot of insurance companies will offer discounts for having multiple insurance policies as well as endorsements. For example, with some insurance companies, you can bundle auto insurance with condo insurance for further discounts. Most companies try their best to streamline the process so your liabilities are covered and payment is easy.
What to look for in a policy
What to look for is simple. Look for what the policy explicitly mentions is covered and look for what is explicitly not mentioned. Insurance is always nuanced, and you may have different needs depending on your geography or personal liability needs. Assess your needs, look at what’s covered, notice what’s not mentioned, and then adjust your policy with endorsements from there to achieve peace of mind.
Is it worth it?
Condo insurance is daunting. There is nuance to a policy and what you assume might be covered may not be. So ultimately, is it worth it? Absolutely. Peace of mind is worth something to everyone and planning for contingencies covers you against the catastrophes life can throw at you. At the end of the day, the premiums of a solid insurance policy are easy to pay in exchange for the knowledge that you and your investment are all set.
Looking to get a condo insurance policy? Get a quote with Elephant Insurance today.
Article last updated on June 25th, 2023 at 7:29 pm
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