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If you are buying a condo for the first time, you need to look at getting condo insurance.
But what is condo insurance exactly? Condo insurance, also known as an HO-6 policy in the insurance world, covers everything that is not covered by the HOA’s master policy. This typically includes any non-standard fixtures in your home and its contents.
Key Points
• HO-6 condo insurance covers everything the HOA master policy does not, including non-standard fixtures, interior contents, personal property, and liability for injuries inside the unit.
• “Walls-in” coverage protects interior elements including floors, countertops, built-in appliances, and cabinets, while personal property coverage requires a detailed inventory of all belongings.
• Loss assessment coverage protects against unexpected shared-area repair bills, covering building property damage, liability assessments, and master policy deductible assessments passed down by the HOA.
• Requesting the HOA master policy before purchasing coverage helps identify gaps to fill, and checking building-specific insurance requirements avoids costly surprises after purchase.
• Purchasing the cheapest policy is a common first-time mistake, as lower premiums often mean higher deductibles and reduced protections, and coverage should be secured before closing day.
Why Do First-Time Condo Buyers Need Insurance?
First-time condo buyers need insurance because they are purchasing a home, just like first-time homeowners need insurance when purchasing a home. HO-6 insurance covers your belongings, liability after an accident, and any damage to your individual unit that isn’t covered under your condo association’s master policy. Condo insurance does not cover damage from flooding, earthquakes, or normal wear-and-tear.
Mortgage Lender Requirements
Mortgage lenders require proof of insurance coverage when applying for a mortgage loan. This includes condos as well. This is for protection of the lender’s financial interest in the property during the loan term.
Closing the Gap on Your HOA Master Policy
Although some first-time condo buyers may assume that the HOA master policy covers everything for their condo, it does not. The HOA master policy will likely cover damage to the exterior structure of the condo building, interior common areas, or exterior common areas.
The master policy may also cover liability insurance if someone is injured in the common areas. However, it will not cover damage to the interior of your condo, damage or theft of your personal property, loss of use coverage, or liability insurance if someone becomes injured inside your condo.
When Should You Buy Condo Insurance During the Closing Process?
You should have your condo insurance in place and ready to go before closing. Therefore, you should start shopping for insurance policies a few weeks before closing. When it gets close to the closing date, you should purchase the policy. The policy should become effective the day before or the day that you take ownership of the condo in order not to delay settlement.
How Much Condo Insurance Do You Actually Need?
How much condo insurance you need depends on the level of coverage in your condo building’s master policy. You should find out how the interior structure of your condo is covered by the condo association’s policy before purchasing your own condo insurance.
Calculating Your Walls-In Coverage (Coverage A)
Coverage A in your condo insurance is the “walls-in” insurance. This covers the interior of your condo from the walls inward. This includes floors, countertops, built-in appliances, and cabinets. Knowing your walls-in coverage costs can help you determine how much condo insurance you actually need, since these costs will usually be high when replacement or repairs are needed.
Estimating Your Personal Property Value (Coverage C)
You should also estimate your personal property value when determining how much condo insurance you need. You should make a detailed list of all of your personal belongings, like furniture, clothing, jewelry, art, and electronics. You could even use an online personal property calculator to help you estimate the total value of your possessions, based on estimated replacement costs. It is important to understand the difference between replacement value (the cost to replace an item with a new one) and actual cash value (the item’s current market value).
Selecting Liability and Loss Assessment Limits
Sometimes your HOA may charge condo members if repairs to a common area exceed the master policy coverage limits. Loss assessment coverage covers these costs, so you aren’t stuck with a sudden and extremely high bill for common areas in your condo building. Loss assessment coverage protects you from building property damage, liability assessments, and master policy deductible assessments. Most condo insurance policies come with around $1,000 in loss assessment coverage, but you can increase it up to $50,000.
Step-by-Step Guide to Buying Your First Condo Policy
Knowing how to buy homeowners insurance is very important if you are buying your first condo. There are a few steps that you should follow.
Request the HOA Master Policy Details
First, you should request the HOA master policy. Knowing what is already covered under your HOA’s master policy can help you when choosing condo insurance for yourself. If something is covered under the HOA master policy, you don’t need to add it to your own policy.
Gather Your Condo’s Specific Information
Ask your condo if they have any specific requirements for condo insurance in their building. It is better to find out their requirements before purchasing a policy.
Compare Quotes and Deductibles
Condo insurance costs can really vary, so it is important to compare quotes and deductibles to find the best policy for you. Compare all aspects of the policies, including things like loss assessment coverage, to make sure that the policy covers exactly what you would want it to cover, and at the best price you can find.
Finalize the Policy and Provide Proof to Your Lender
Finally, you should finalize the policy and provide proof of policy ownership to your lender. Many lenders will require this as part of closing.
Common Insurance Mistakes First-Time Condo Buyers Make
A common insurance mistake that first-time condo buyers make is choosing the cheapest insurance policy without understanding the potential trade-offs. Lower insurance premiums often mean higher deductibles, lower coverage limits, or fewer protections. Be sure that you understand the entire policy before purchasing.
Another common mistake is assuming that the condo HOA insurance covers everything. While the condo association’s insurance policy may cover structural damage, it does not cover personal property damage or certain liability risks. It is wise to review the condo association’s insurance policy before purchasing your own.
The Takeaway
Condo insurance is necessary for first-time condo buyers. Like any insurance, you can shop around to find the right policy for your needs and budget.
If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.
SoFi brings you real rates, with no bait and switch.
FAQ
Do I pay for condo insurance at closing or monthly?
Your lender will likely require you to have HO-6 insurance in place before closing as a condition of the mortgage. You will likely pay for the first month of the insurance policy in advance, and then continue paying monthly after that.
How quickly can I get a condo insurance policy for my mortgage?
To get condo insurance quickly, you should compare quotes online. It can take as little as a few days to get a condo insurance policy for your mortgage, depending on the requirements of the insurance provider and your lender.
What is an HO-6 insurance policy?
HO-6 insurance is homeowners insurance for condo owners. A typical HO-6 policy covers your belongings, liability after an accident, and any damage to your individual unit that isn’t covered under your condo association’s master policy.
Can I bundle my new condo insurance with my auto insurance?
Yes, many insurance companies will allow you to bundle condo and car insurance together. Before planning to bundle, ensure that your auto insurance company offers condo insurance, and that it is a good policy for your needs.
Do I need condo insurance before I move in?
Condo insurance is actually not required by law in any state. However, condo insurance is a requirement for mortgage approval.
Photo credit: iStock/RomanBabakin
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