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You’ve found the perfect condo, but before you can close on your mortgage, your lender will probably require you to get a condo insurance policy. But it’s more than checking off a box — the right coverage helps to ensure you’re financially protected throughout a range of scenarios. Wondering, “How much condo insurance do I need?” Keep reading for the answer.
Key Points
• Reviewing the homeowners association master policy determines whether the building has bare walls or all-in coverage, which reveals the insurance gaps an individual unit owner must cover.
• Calculating dwelling coverage requires estimating the local cost of labor and materials to rebuild the interior structure, drywall, flooring, and any custom renovations or upgrades.
• Estimating personal property coverage involves creating a detailed home inventory and choosing between actual cash value or replacement cost value reimbursement for damaged belongings.
• Determining personal liability and loss of use coverage limits protects personal assets against potential lawsuits and funds temporary housing expenses during major interior repairs.
• Evaluating loss assessment coverage helps protect the owner from out-of-pocket expenses if the association passes down shared building damage costs through a special financial assessment.
Step 1: Review Your HOA Master Policy
The first step is to look at your homeowners association (HOA) master policy to see what kind of coverage is already provided simply by living there. You can request a copy from the HOA board or property manager. Once you have the document in hand, there are a few features to look for.
Identifying “Bare Walls” vs. “All-In” Coverage
Some HOA master policies are more comprehensive than others. Before determining your own dwelling coverage for your condo, see if your master policy includes bare walls or all-in coverage.
Bare walls coverage: Typically covers shared structures within the building, such as the roof and exterior walls; common areas may also be included.
All-in coverage: Includes your unit’s interior elements as well; some policies provide coverage for its original features, and some cover upgrades as well.
Finding the Gaps in Your Association’s Protection
Using the information from the HOA master policy, determine what areas of your condo you’re responsible for insuring. In addition to some of the interior components, you’ll need coverage for personal property in case your furniture and other belongings are damaged. You’ll also need personal liability insurance for any injury or other incident that occurs in your unit you may be responsible for.
Finally, see what perils may not be included in your HOA master policy. For instance, damage from floods and earthquakes usually isn’t eligible for coverage unless you buy an additional policy.
Step 2: Calculating Your Dwelling Coverage (Coverage A)
The first part of your HO-6 coverage limits to calculate is your dwelling coverage. This protects those areas of the unit that aren’t included in the HOA master policy. There are several factors to consider.
What “Walls-In” Coverage Actually Protects
First, inventory the portion of your unit that’s your responsibility when a covered loss occurs. Depending on that master policy, it could include drywall, flooring, countertops, fixtures, appliances, and more.
Estimating the Cost to Rebuild Your Interior
Your dwelling coverage should be enough to repair or rebuild all of those interior features in the event of fire, wind, or other eligible perils. Calculate how much it would cost to reconstruct the interior in your local area, including supplies and labor costs.
Factoring in Custom Upgrades and Renovations
Also remember to account for upgrades throughout your condo. Higher-end finishes will cost more to replace than builder-grade materials. If your HOA master policy only covers original fixtures, you’ll need to include the value of the upgrades in your personal policy. Also, update your coverage anytime you renovate your condo; otherwise, you may have to pay out of pocket if you don’t have enough coverage after filing a claim.
Recommended: Condo Insurance vs. Homeowners Insurance
Step 3: Estimating Personal Property Coverage (Coverage C)
You also need personal property coverage in your condo policy. When an insurance claim is approved, you can be reimbursed for damaged property to help you rebuild.
How to Take an Accurate Home Inventory
Creating a detailed inventory of your belongings helps to make sure you calculate the right amount of coverage. Make a list of major belongings in each room of your condo, especially items that are higher in value. Taking photos and saving receipts can also be helpful. Some insurance companies have an inventory function in their app, or you can download a third party property inventory app for easy tracking.
Actual Cash Value (ACV) vs. Replacement Cost Value (RCV)
There are two different types of reimbursement you can choose for your personal property coverage:
Actual cash value (ACV): Get reimbursed for the value of your property in its current condition, accounting for age and wear and tear.
Replacement cost value (RCV): Get reimbursed for the amount of money it would take to buy each item new today, regardless of its age or condition.
Scheduling Endorsements for High-Value Items
Most Coverage C policies come with a limit, usually 50% of your dwelling coverage limit. So if your condo is insured for $150,000, the policy may only cover personal property up to $75,000. On top of that, there may be smaller sub-limits for high-value property, such as $1,500 for jewelry or art. If you have personal property that exceeds those limits, you can purchase an endorsement and schedule specific high-value items to get fully reimbursed.
Step 4: Determining Liability and Loss of Use Limits
The next two portions of your condo insurance policy include personal liability and loss of use (also known as additional living expenses).
How Much Personal Liability Coverage (Coverage E) is Enough?
Most insurance policies come with at least $100,000 in personal liability coverage. But you may want to increase the minimum if you have a higher net worth. If someone gets injured on your property and sues you, they may target your personal assets. Calculate the value of your condo, auto, bank accounts, and investment accounts and use that as a starting point for Coverage E.
Calculating Loss of Use Coverage (Coverage D) for Temporary Housing
Loss of use coverage helps to pay for living expenses if you can’t inhabit your condo when repairs are being made after a claim. The limit is usually the equivalent to 20% to 30% of your dwelling coverage limit. You may consider purchasing coverage on the higher end if you live in a high-cost-of-living area or if you have a large condo that may take longer to repair if extensive damage occurs.
Step 5: Evaluating Loss Assessment Coverage
The final part of your policy can help protect you in case your condo association’s coverage isn’t enough.
Why Shared Condo Damages Can Cost You
If your condo association has covered damage in shared spaces that isn’t fully covered by its master insurance policy, it can pass on those additional expenses to condo owners in the form of a special assessment. Instead of paying that figure on your own, you can get loss assessment coverage to cover this scenario.
Choosing the Right Assessment Limit
Look at the master policy to review the condo association’s coverage limits as well as the deductible. Get coverage for at least your portion of the association’s deductible (calculated by dividing the deductible by the number of units in your association). That can be a good starting point.
The Takeaway
Getting the right amount of condo insurance coverage gives you financial protection and peace of mind. There are several components to consider, but you’ll feel confident in your ability to weather any storm with the right policy in place.
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 need to insure my condo for its full market value?
Instead of looking at market value, calculate your condo insurance coverage based on the cost to rebuild using today’s value of labor and materials.
What is a good amount of personal property coverage for a condo?
Condo policies usually start personal property coverage at 50% of your dwelling coverage amount. But you may want an additional rider if you have specific high-value items that exceed policy limits.
Will my lender tell me how much condo insurance I need?
Your lender will give you a minimum requirement for your dwelling coverage, and you must provide proof of coverage before closing (and typically at intervals throughout the life of the loan).
Does dwelling coverage pay for my condo’s roof?
Because your condo’s roof is part of the building’s exterior, it’s usually included in the HOA’s master policy, not your individual policy.
Can I change my condo insurance limits later?
Yes, you can change your condo insurance limits later, either with your current insurer or with a new one.
Photo credit: iStock/humanmade
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