All You Wanted to Know about Condo Insurance

Personal condo insurance, also called an HO6 policy, is a bit different than homeowners insurance, even though condo owners might take on a mortgage like you would for a single-family home and are “owners” of their units, as opposed to being renters. Personal condo insurance is sometimes overlooked because, unlike homeowners, condo purchasers don’t always need to provide a binder of insurance to their lender because the building itself is insured under the condo or homeowner association policy (HOA).

But don’t let this dissuade you from investigating personal condo insurance to cover your property! It’s important to understand how condo insurance works and why you need a personal policy to protect yourself and your financial assets should disaster strike.

Condo ownership

As a condo owner, you (usually) own your unit from the walls inward, the ceilings down, and the flooring up. Other units adjacent to yours are owned by their owners, with common areas, shared spaces, and structural building components (like the roof, siding, foundation, etc.) owned by the condominium company. It’s important to understand exactly who owns what because that ownership dictates insurance responsibility.

Coverage

There are two insurance policies that cover your investment in your unit, including your personal belongings: the master policy and your own personal insurance.

The master policy is held and managed by the condo association, condo company, or HOA. This master policy is typically responsible for insuring the residential structure as a whole against damage and covering injury sustained in shared or common areas. Beyond these basics, there are two kinds of master policies as they pertain to coverage of individual units: All In and Bare Walls.

An “All In” or “Walls In” policy covers the original structure, walls, floors, ceilings, and fixtures as they were delivered when the building was originally built—it does not cover alterations, improvements, appliances, or fixtures added by you or any previous owner.

A “Bare Walls” policy is less inclusive and only covers the uncovered drywall and subfloor. That means costs to repair or replace wall paint, wallpaper, carpeting, fixtures, cabinets, toilets, and countertops aren’t covered.

Although damage to shared areas is covered by the condo’s master policy, there can be special assessments within the policy that could make you liable for part of the medical costs incurred by an injured guest in a common area or a claim arising from injuries in common areas.

As you can see, even with the more inclusive All In policy, you would still want an additional personal policy! Your own policy would cover personal property against theft, vandalism, and damage from fire and smoke; personal and umbrella liability; repair of any improvements or changes to the condo; and loss assessment.

Loss assessment is important because it protects you from unexpected expenses you might have to pay as a result of damages related to the building your condo is in, including if you must live elsewhere, like a hotel, while repairs are conducted. It also protects you in case damage covered under the HOA’s master policy exceeds their policy limit. If this happens, and you don’t have a loss assessment under your personal policy, you might be forced to pay to make up the difference between the cost and the HOA’s policy limit.

Similar to a homeowner’s policy, condo owners can choose from different types of personal property coverage. Actual cash value means you’ll be paid the depreciated value of your damaged belongings. Replacement cost coverage, on the other hand, reimburses you for the difference between the actual cash value of your belongings and what you pay to repair or replace them. Each policy comes with a limit—the maximum amount you’ll be reimbursed for a claim—and you may need to pay a deductible before your coverage begins.