Condo Insurance: Facts You Need to Understand

With the cost of new home construction going up, more condominiums are being built with shared land that makes homes more affordable. Are you’re buying your first home or first condominium? You’ll want to learn more about the condo insurance you’re buying to make sure you’ve got the right coverage in case of an emergency.

Condo insurance isn’t the the same as the insurance you get for a single family home!

Sadly I didn’t take time to learn this when I bought my condo in 2006. So in 2018 when selling the condo, I learned a few lessons the hard way. Thus I want to make sure you don’t make the same mistake I did with my condo insurance …

And if you’re looking for other homeowner insurance info, here are some articles we’ve written:

Condo Insurance: Figuring Out Who Owns What?

Usually I’m pretty good about reading documents before I sign them. It means closings take me longer with the mountain of paperwork involved these days. Thinking back in time, my best guess is I didn’t read our condo docs because I didn’t have to sign anything related to them. We knew there were condo docs, had a copy somewhere but honestly pretended they didn’t exist … really.

Why didn’t I take my first condo docs more seriously?

Like many home buyers, I focused on the wrong thing when buying our condo, one of two units making up a condex. We were told there were no HOA fees and we assumed no fees = no services, and we’ve maintained our unit inside and out. In the twelve years we’ve owned our condo, there’s never been an association meeting, no election of a board of directors … you get the idea. But here’s what I never understood until writing this article (you see I’m learning too).

Unlike a house, condo owners don’t own the building they live in or the land it sits on. Your condo or homeowners association (HOA) owns these and will carry a master insurance policy for the building and pay for accidents that occur on outside property or in common areas.

Here’s what your condo docs should explain in detail:

The “common areas” are shared by you and other owners. For my condo this means the land and shared interior wall between the two units. More typically, the common area will include a lobby, elevators, hallways and amenities like a tennis court.
We were promised an extra parking spot but didn’t confirm this in the condo docs and sadly, learned too late that our overflow parking was on the lawn or street.
More confusing is the concept of “limited common areas”. While assigned to a specific condo unit, they are considered to be the property of the condominium community association and not the tenant. The best example I’ve been able to identify is overflow parking spots.
Finally the individual units owned by each condo owner. Inside your unit you have total discretion to make improvements beyond the basic unit you purchase but you’ll also need to insure these improvements.

Condo Insurance: Multiple Policies Cover What?

Once you understand what you own versus what’s owned by the condo association, it’s time to learn what’s covered by each condo insurance policy. How many insurance policies are there? If done right, you’ll be covered by two different condo insurance policies.

The association’s master policy covering damage to the building’s exterior, common areas and shared amenities. The master policy also carries liability insurance for accidents that occur in common areas.
Individual owners need to purchase condo insurance called an HO6 policy. This policy covers your personal property, some dwelling coverage for any improvements you make and liability for accidents that occur inside your unit.

Buying the Right Condo Insurance Depends …

You can’t determine the type of condo insurance you need without reviewing your condo docs. I would also suggest that you review the master policy for the condo. You want to be clear about what the master policy covers, as it affects how much extra coverage you need.

Here are the three types of master policies your condo association might have. Ideally your association’s bylaws will clearly document what the association master policy covers and the type of coverage you need to buy.

Most common, bare walls coverage insures structural building elements. These include walls, floors, the roof, exterior siding and elevators. Unit owners must cover all interior finishes and sometimes that includes the interior walls of their units.

One step up, a single entity policy covers the structural elements of a building, plus standard finishes inside each unit. It does not cover any improvements the unit owner has made to the property or the owner’s personal property.

A step up, modified single entity/all-in coverage covers structural building elements plus upgraded fixtures and improvements to the interior finishes of the units walls, floors and ceilings. This added coverage means unit owners only need to buy coverage for their personal property.

PS If you’ve read down to here you realize I’m not an insurance expert. Here are a few of the articles I read in order to give you a basic overview on condo insurance and my two insurance agents who helped me learn what I’ve shared here reminded me that everyone should work with a licensed insurance agent to review their by-laws and master policy.