Condo insurance: How much is enough?

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If you own a condominium, you’ll need an individual condo insurance policy even though your condo association has its coverage.

While the condo association takes some of the insurance burdens off you, you’ll still need your protection.

Condo association insurance typically covers building exteriors and common areas. However, this type of home insurance – known as the master policy or Home Owner Association (HOA) policy – doesn't likely cover what's inside your specific unit. It also may not cover all damages outside your unit.

Condo insurance coverage

Homeowners insurance and condo insurance vary regarding what’s covered.  While regular homeowners insurance covers damages to the home and contents, condo insurance, also known as HO6 insurance, covers property damage and liability risks for condo owners inside the condo only.

When looking to buy condo insurance, carefully review your condo association policy first. Notice the level of protection your condo association offers.

"The way it works is the condo owner's policy dovetails with the master policy," says Eric Goldberg, associate general counsel for Washington D.C.-based American Insurance Association. "Where the lines are drawn is dictated by the condo documents."

The HOA policy isn't going to be easy reading – some association policies can be dozens of pages of legalese – but it's essential to understand where your responsibility begins.

"Sometimes they are easy and straightforward, and other times they can be complex, where you almost have to be a lawyer" to understand them, says Doug Foulks, a product manager at Columbus, Ohio-based Nationwide Insurance.

There are different phrases you’ll want to look for, such as “all in, “all inclusive,” “special entity, “ “bare walls in” and “wall studs in.” These phrases tell you the level of coverage that the HOA policy provides.

Here are the three different types of condo association policies from most protection to least protection:

All in and all inclusive. Protects all individual units’ exterior and interior surfaces, including fixtures, installations, and additions. The individual condo owner is still responsible for personal property.
Special entity. Covers nearly all of the condo structure, which includes fixtures in units. This coverage does not contain structural improvements or unit additions. The condo owner is responsible for personal property coverage.
Bare walls in and wall studs in. Covers only the bare structure. You will need to insure all of your condo’s interior contents, including bathroom and kitchen fixtures and countertops, as well as your personal property.

Knowing what the master policy covers can help you purchase the proper individual home insurance policy coverage, says Foulks.


HO6 Condo Insurance: What does it cover?

HO6 Condo Insurance covers damages to the unit and personal property, as well as liability claims, such as someone getting injured in your condo.

HO6 Condo Insurance typically provides protection for damages to interior walls, floors, and ceilings. It normally covers damage caused by:

• Fire
• Weather (in many states, hurricane damage is not covered)
• Theft
• Vandalism
• Smoke damage
• Frozen pips

Much like regular homeowners insurance, a regular condo insurance policy does not protect you against flood damage. You will have to buy a separate policy.

Condo liability insurance

Liability insurance is typically part of the usual condo insurance policy. It protects you in case someone is injured in your condo unit.

Make sure you select liability limits that are enough to protect your assets. Liability insurance often ranges from $100,000 to $500,000. You may want to explore a personal liability if the liability limits are not high enough.

The liability portion of condo insurance is the cheapest and can cost around $20 a year for $300,000 in liability coverage, says Ben Schuam, a product manager at Mayfield Village, Ohio-based Progressive Insurance.

Condo contents insurance

Standard HO6 condo insurance covers floors, inner walls, and light fixtures, but you may still want to cover your contents. That’s where personal property or condo contents insurance comes in.

The personal property portion of your insurance protects furniture, clothing, and electronics. Anything that you’re going to be able to take with you if you were to move will likely be covered under contents insurance. Here are some examples:

Structure

• Floors 
• Cabinets
• Carpets
• Light fixtures
• Inner walls
• Countertops

Contents

• Furniture
• Appliances  • Electronics
• Jewelry
• Clothing
• Artwork
• TVs

You’ll want to keep track of all of your belongings within the condo unit. When valuing your belongings, consider what it would cost to replace them in today's dollars, Schuam says.

Keep in mind standard condo insurance has limits on certain valuables, such as fine art, antiques, jewelry and electronics. So, you might need to purchase an endorsement or "floater" to provide additional coverage for certain items.

Schuam says the amount of separate insurance you can take out to cover the physical aspects and personal content of your condo typically ranges from $25,000 to $100,000. Premiums range from around $400 to $600 a year.

One typical mistake condo owners make taking out coverage that reimburses the actual cash value of their belongings instead of a policy that covers the replacement costs, Schuam says. Actual cash value coverage is cheaper, but it doesn't reimburse the gap between present cash value and your items’ replacement cost, he says.

Here’s an example of the difference:

Flat-screen TV purchased several years ago

• Cash value: $500
• Replacement value: $2,000

"People tend to underestimate the cost to replace all the stuff," he says. "We are not talking about what it's worth today, but what it costs to replace it new."

Replacement cost coverage is more expensive than actual cash value coverage, but you'll be glad you paid the extra price if you suffer a major loss in a catastrophe.

Loss assessment coverage

Condo owners should also look into loss assessment coverage, which helps pay for condo association-related incidents. As a member of a condo association, you collectively own the common areas. You may need to pay as an individual condo owner if:

  • Claims exceed the association’s policy limits, or you are required to contribute to a hefty deductible.

  • Losses occur that are not covered by the insurance policy, such as injuries from a pool slide is excluded from the HOA policy.

Some common loss assessment claims are:

• Weather damage to the outside of the building.
• Injuries in a common area.
• Damages to common areas.

"Depending on the type of loss, the condo association can go back against the owners of the condo…and everyone would have to pay their part," Foulks says.

If the condo association's loss assessment policy isn't expensive, additional loss assessment coverage is a good protection for condo owners, he says.

Check your HOA master policy to determine the association’s coverage limit. Pay attention to whether or not there are special deductibles for certain hazards.

How much condo insurance do I need?

Condo insurance is more complicated than regular home insurance because of the different types of HOA policies and regulations.

A good rule of thumb is that you may need more HO6 insurance if your HOA policy is for “bare walls” or “wall studs in.”

You must decide how much coverage is necessary to protect your belongings and interior features, such as wood floors, kitchen cabinets, and fixtures. Take stock of the interior items in your condo unit, including furniture, clothing, and electronics. Don’t forget to record any expensive artwork.

One good estimation is to assume $40,000 in personal property for the first 1,000 square feet of your condo and then add $5,000 for each additional 500 square feet.

Figure out what level of liability insurance you need. If your assets are more than $500,000, you may want to look into an umbrella policy. Don’t skimp on liability insurance. For little money, you can be properly protected.

Look into loss assessment coverage so you can protect yourself in case someone is injured in a common area, or the exterior of the building is seriously damaged.  Loss assessment coverage is especially important if your condo association has a hefty deductible (some plans have $50,000 deductibles) and your complex may have risky items not covered by an HOA policy, such as a pool slide or diving board. 

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