What is condominium insurance? Condo insurance is a policy that protects a condo owner’s possessions and other parts of his or her condo should a covered event occur.
Condominiums are unique in that they need two policies: One policy for the structure as a whole and another policy that protects the individual unit. The master policy is purchased by the HOA, while the unit policy is purchased by the condo owner. Any policy a condo owner purchases should complement the master policy purchased by the HOA.
Key Points
• HO-6 condo insurance protects individual units while HOA master policies cover building structures and shared areas, requiring both policies to work complementarily
• Interior structure coverage protects walls, ceilings, floors, and cabinetry, while personal property coverage includes clothing, furniture, art, jewelry, and electronics within the unit
• Liability protection covers injuries occurring in the condo and property damage to others, with loss of use coverage paying temporary living expenses during repairs
• Loss assessment coverage helps pay additional costs when HOA master policies cannot fully cover repair expenses after catastrophic events in common areas
• Understanding master policy coverage gaps and choosing between actual cash value or replacement cost options ensures adequate protection for unit improvements and additions
How HO-6 Condo Insurance Works
To understand condo insurance, you first need to understand what a condo is. A condo is an individual unit within a larger building where condo owners share ownership of common areas with other condo owners.
Condos are not to be confused with townhomes because townhomes only share walls. Also, the shared areas of townhomes are typically reserved for small walkways or parking lots. Condos vs townhomes have different insurance needs, too.
Because condos are a part of a larger structure, they need two policies: One master policy to insure the larger structure, and another policy, held by the individual condo owner, to cover the individual unit.
So what is condo insurance?
HO-6 condo insurance is the policy that covers the individual unit. If you’ve owned a home before, it doesn’t cover the same things that your homeowner insurance covered. Condo insurance does not insure the entire structure, whereas homeowner insurance does.
What Does Condo Insurance Cover?
What does condo insurance cover? A few different things, each of which is vitally important. Primarily, it covers your belongings, your unit, and your financial exposure should something happen at your unit and you be held liable.
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Interior Structure Coverage
Interior structure coverage protects the physical parts of the condo that you own as a condo owner. This means it protects your walls, ceilings, floors, and cabinetry; essentially, the parts of the condo that you can walk around and easily touch.
Interior structure coverage covers damage from events like kitchen fires or burst pipes.
Keep in mind that if you do any improvements to your condo that adds to your unit’s value, whatever insurance you purchase should be able to cover your unit’s worth (not what you first paid for it). If it doesn’t, you’ll be underinsured and could lose money if a catastrophic event should occur.
A homeowners insurance guide can help you determine whether renovating your condo is a good idea when it comes to insurance coverage.
Personal Property Coverage
Personal property coverage covers your personal belongings if they are damaged or stolen. It covers things like:
• Clothing
• Furniture
• Art
• Jewelry
• Electronics
When choosing a policy, determine whether the policy offers actual cash value or replacement cost coverage. Actual cash value accounts for depreciation. Replacement cost coverage determines the amount needed to replace your losses with new items if they were purchased today.
As you might expect, replacement cost coverage costs more than actual cash value. If you need to save on your monthly premium, opting for actual cash value should help lower your costs.
Liability Protection
How much is homeowners insurance for condos? It partially depends on the amount of liability protection you choose.
Liability protection protects you if someone is injured while in your condo, or if your actions somehow damage another person’s property.
Liability protection doesn’t just protect you based on your location. It also protects you in the event you’re held responsible for damages.
It’s one of the most important aspects of your condo insurance. If you don’t have adequate liability protection, it’s very easy for a single event to severely affect your finances or open you to lawsuits.
Loss of Use Coverage
Loss of use coverage pays for any temporary living expenses in the event that you’re unable to live in your condo because of a covered event. Extended hotel stays, meals, or any other costs incurred during the loss of use period are covered while repairs are ongoing.
The amount of coverage varies plan by plan. Before you purchase a policy, it may be a good idea to compare the loss of use coverage amount with actual costs in your area. If there’s a discrepancy, you may want to consider a different insurer.
Loss Assessment Coverage
Loss assessment happens when an HOA passes costs onto individual unit owners. For example, if a common area is damaged after an event, and the master policy doesn’t cover the costs of all repairs, then the HOA may pass those additional costs to the condo owners.
Loss assessment coverage would help you cover those additional expenses.
Because in many areas there isn’t a limit on how much an HOA can pass on to owners, this coverage is critical to have.
What Is Not Covered by Condo Insurance?
It depends on the policy, but flood damage and earthquake damage typically require separate policies.
Flood coverage, for example, is usually purchased through the National Flood Insurance Program. You can see if your condo is in a flood-prone area by visiting Flood Smart.
Another thing to consider is if you own any high-value items. If their value surpasses your policy’s limits, you may want to consider purchasing additional endorsements.
How Condo Association Master Policies Work
Condo association master policies insure the building itself and any shared areas. If something catastrophic occurs and the policy isn’t able to cover the total cost of repairs, those additional costs are typically passed onto individual condo owners.
One of the best things you can do to protect yourself is to understand everything the master policy covers. Once you’ve determined what the policy does and does not cover, you can fill in any gaps in coverage when purchasing your own policy.
How Much Condo Insurance Do You Need?
The amount of coverage you need depends on a few factors. If something were to happen to your condo, how much would you need to rebuild it?
Next, do an inventory of your personal possessions. Estimate the cost to replace everything. After that, determine how much liability coverage you need. You need a number high enough to protect both your assets and income.
When determining loss of use, do the math on what it would cost to have an extended stay at a hotel in your area. For loss assessment, you want as high a number as you can comfortably afford.
Typical condo insurance costs vary, but a good rule of thumb is to not go with the cheapest policy. Instead, find something in the middle of the road. A policy should easily take care of your financial needs without breaking the bank.
The Takeaway
An HO-6 policy covers what your condominium’s master policy does not. If you want to be thoroughly covered, read through the master policy to understand what you truly need.
When you’re ready, compare policies to find the best rates and the best coverage.
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
What does an HO-6 policy cover?
An HO-6 policy covers personal belongings, the unit’s interior, additional living expenses, and shared property assessments.
Does condo insurance cover appliances?
If you own the appliances and they’re damaged by a covered event, an HO-6 policy should pay for their repair or replacement.
Is loss assessment coverage required?
In some cases, it is not required, but that does not mean it shouldn’t be highly considered by the condo owner. Associations have the right to pass unexpected costs to owners. If you’re on a fixed budget, this could put a strain on your finances if it were to occur.
Does condo insurance cover water damage?
Most policies do cover water damage, so long as the water damage is not caused by long-term neglect. Sudden or accidental water damage is typically covered by most HO-6 policies.
Do condo owners need insurance if the association has coverage?
Yes, condo owners need insurance even if the association has coverage. This is because the master policy doesn’t insure your personal belongings, nor does it provide any liability protection.
Photo credit: iStock/Ridofranz
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