A condominium unit is a significant purchase, and condo insurance provides valuable financial protection for your investment in the property. Even though most homeowners associations (HOAs) have their own master insurance policies, their coverage generally only applies to common areas. Here’s what you need to know about how the condo insurance you purchase for your unit protects you.
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What is condo insurance?
Condo insurance is typically offered in a package that covers damage to the inside of your unit, your belongings, liability claims and certain other expenses.
The technical term for condo-unit-owner’s insurance is HO-6, which is a modified form of homeowners insurance. HO-6 policies typically also meet the needs of unit owners in a co-op.
An HOA’s master policy generally covers damage to the buildings, common areas and shared liabilities. The condo insurance you purchase for your unit essentially picks up where the master policy leaves off.
It’s important to know that an HO-6 is designed for those who live in a condo unit they own. You need renters insurance if you plan to live in a condo unit you rent from someone else.
You can usually add an endorsement to an HO-6 to cover short-term rentals, but landlord insurance is typically required for a condo unit you rent out to others on a full-time basis.
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What is the average cost of condo insurance?
The average cost of condo insurance nationwide is $512 a year, or $43 a month, according to the National Association of Insurance Commissioners. For comparison, the average cost of insurance for detached homes is $106 a month, and renters insurance rates average $15 a month.
Insurance companies use several factors to determine your condo insurance rate, including the location and characteristics of the unit and complex, your insurance history, your credit (where allowed) and the amount of coverage you choose.
Most home insurance companies also offer condo insurance. Since each company uses a different formula to determine your rate, it’s best to compare quotes from multiple companies when you shop.
What does condo insurance cover?
A condo insurance policy typically includes the following coverages:
- Dwelling (sometimes called building property): Covers damage to the inside of your unit from a covered peril, such as fire, windstorms, hail, burst pipes and falling objects. Floods and earthquakes are typically excluded, but separate insurance is available for each.
- Personal property: Protects your personal items, including furniture, clothing, kitchenware, gadgets and gear from damage or loss from a covered peril, including theft. Limits typically apply to certain valuables, including jewelry and silverware.
- Loss of use: Rent and above-normal living expenses if a covered peril leaves your home temporarily uninhabitable.
- Personal liability: Covers other people’s expenses for injuries or damage you cause.
- Medical expenses: Medical treatment for guests injured while visiting your home, regardless of fault.
- Loss assessment: Covers HOA assessments for certain shared costs, such as repairs to common areas damaged by a covered peril.
What does a condo association’s master policy cover?
A condo HOA’s master insurance policy generally covers damage and injuries that occur in common areas, and a portion of your HOA dues help pay for this policy.
Master policies also typically provide one of three types of coverage for structural damage to individual units within a complex: bare walls, single entity and all inclusive.
Here's how these different types of master policies work:
- Bare walls: With bare-walls coverage, the HOA’s insurance does not cover anything inside the bare walls of your unit. This leaves you responsible for everything from wall coverings and flooring to appliances, cabinets and fixtures. If your association has bare-walls insurance, you need “walls-in” condo insurance.
- Single entity: Under a single-entity policy, the HOA’s insurance extends to the unit’s original fixtures, but you are generally responsible for any improvements. In the event of a total loss, the HOA’s insurance pays to restore the unit to its original condition.
- All inclusive: An all-inclusive master policy includes coverage for most permanently attached fixtures and appliances. This includes improvements, such as custom countertops or floors that you or a prior occupant may have installed. An all-inclusive master policy generally pays to restore your unit to its current condition.
Before you shop for condo insurance, it’s best to find out about the coverage your HOA’s master policy provides.
How much condo insurance do I need?
The type of coverage in the HOA’s master policy helps determine the amount of dwelling coverage you need in your condo insurance policy. The rest depends on the value of your possessions and your financial situation.
Here are key things to consider as you choose your coverage limits.
If you need a walls-in condo policy, you should estimate the cost of replacing all the appliances and furnishings inside your unit, from the flooring on up and the walls in. Insurance agents often use software to estimate these costs, based on factors such as the size of your unit and the quality grade of your fixtures.
If your HOA’s master policy provides single-entity or all-inclusive coverage, you may only need a minimal dwelling limit. With either of these coverage types, occupants are often responsible for the master policy’s deductible, which can range from $25,000 to $100,000.
- If the HOA’s master policy provides single-entity coverage, your dwelling limit should include the estimated cost of replacing any custom features in your unit, in addition to the master policy’s deductible.
- You may only need enough dwelling coverage to cover the master policy’s deductible if the HOA's insurance provides all-inclusive coverage.
The best way to determine how much personal property coverage you need is to create an itemized list of your possessions and the value of each item or set. The personal property limit you choose should match or exceed their total value.
Since a standard HO-6 includes sublimits on valuables such as jewelry, artworks and collectibles, consider adding an endorsement or floater to protect high-value items.
Loss of use
Most policies come with a default amount of loss-of-use coverage, but it usually does not cost much to increase your limit. Your loss-of-use limit should be high enough to cover several months’ rent in your area.
Condo insurance often comes with a default personal liability limit of $100,000, but this is not always enough. Considering the litigious nature of our society, it’s usually worth bumping your liability limit up to at least $300,000. If you earn a high salary and/or your net worth exceeds this amount, consider a higher limit or an umbrella policy.
Condo insurance often comes with a $1,000 limit for medical expense coverage, which covers medical costs for guests injured in your home, regardless of fault. The default limit is usually a good start, but it’s easy, and often cheap, to bump this up to $5,000 for more protection.
Increasing your loss assessment coverage is a great way to avoid getting blindsided by a sudden, unexpected assessment from your HOA. The default loss assessment limit for condo insurance is usually between $1,000 and $2,000. Bumping your loss assessment coverage up to $10,000 or more often only adds a few dollars to your monthly insurance bill.
Bear in mind that loss assessment coverage only applies to assessments resulting from a covered peril or liability. For example, it typically covers an assessment to replace a roof damaged by a fallen tree, It usually does not cover an assessment to replace a roof that's simply old and worn out.
Is condo insurance required?
Lenders typically require condo insurance when they finance your unit with a mortgage, and many HOA’s include condo insurance requirements in their bylaws, regardless of your mortgage status.
A lender requires insurance to protect its financial stake in the property. A condo association wants to make sure you can afford to repair your unit in the event of a disaster and cover any liability claims that may arise against you.
There are generally no state laws that require unit owners to purchase condo insurance. However, considering the value of your home and possessions, condo insurance is usually worth having even when it’s not required by a lender or association.
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