Three years into owning his studio condo in New Orleans, Riley Adams’ upstairs neighbor had a leak in his bathroom.
The water damage caused Adams’ ceiling to collapse. The entire thing needed replacing. Either Adams or his neighbor were going to face a serious insurance claim.
To err on the side of caution, Adams gave his insurance company a call. They had an inspector who represented his neighbor’s insurance company assess the damage. After the inspection, the inspector offered an opinion on who was liable.
The inspector determined the neighbor to be solely responsible since the leak from his unit caused Adams’ ceiling to collapse. If he had to assume some of the liability, the inspector told Adams that filing a claim with his insurance company would mean a tremendous spike in his premiums.
“I didn’t inquire how much, as I was grateful to have no financial responsibility,” says Adams, who is a 30-year-old financial analyst and founder of Young and Invested.
So what is condo insurance, what does it cover, and why do you need it? Let’s dig in:
What is condo insurance?
Condo insurance is similar to homeowners insurance in that it covers both the structure of the building, your personal items, and liability for any injuries sustained at your place.
But condo insurance works slightly differently. This is because you share the structure with all the condo owners in the building.
This means that condo insurance breaks down into two categories:
A master policy covers structural elements. The premiums for your master policy usually come out of your home association (HOA) dues or from your maintenance fee.
An individual policy to covers liability. This policy is something you’ll have to purchase separately from an insurance company.
Do I need condo insurance?
The condo association will require that you pay a premium for a master policy and hop on a policy for individual liability.
If you’re taking out a mortgage for your condo, the lender requires that you carry condo insurance.
An individual policy lets the association and your lender know that you’ll be able to repair damage to your condo in the case of a disaster.
What does a master policy for condo insurance cover?
While your condo board will be responsible for arranging your master policy, it makes sense to find out exactly how it works. That way you know about any potential gaps in coverage you will need to fill.
Depending on the type of master policy, it might only cover:
1. The exterior structure of the building
2. Collective areas shared with fellow condo owners in your building, such as the basement, roof, elevator, lobby, swimming pools, and walkways
3. The land the condo is on
Types of master policies
Bare walls coverage
This type of master policy only covers the ceiling, floor, and walls. It can also cover furniture and fixtures in the common areas. You can think of it as protecting the shell or skeleton of your condo.
It means that you are also responsible for everything else: the plumbing, wiring, lighting fixtures, and kitchen cabinets.
This type of policy is an extended version of bare walls coverage. But it covers built-in fixtures too.
The condo association is responsible for covering your condo as it was originally built. So if there’s damage from an accident or a disaster, your condo will be rebuilt to restore it to its original condition.
This is the most comprehensive, heads-to-tail coverage. It protects collective property or property that is part of the structure of condo, plus any improvements and additions made to the condo.
How can you find out exactly what a master policy covers? Check your association’s bylaws. If you’re having trouble finding it, ask your condo board, condo association, or an insurance rep.
What does an individual policy for condo insurance cover?
Also known as HO-6 insurance, an individual policy for condo insurance protects personal possessions such as furniture and clothing. Stand-alone appliances can also be covered. Plus, it can also include any structural elements of your condo that aren’t included in your condo master policy.
Like homeowners insurance, condo insurance might also include personal liability insurance, which covers property damage or injury you, your family members, or your pets cause either inside or outside your home.
An individual policy for condo insurance might also cover additional living expenses (ALE), which might reimburse you for your meals or stay in a hotel while your condo is being repaired. (Note: You’ll only get reimbursed for eligible expenses that are comparable to your current standard of living.)
Whereas an individual policy is known as “walls-in” coverage, a master policy only covers common areas.
The individual policy typically covers damage from perils such as fire, bad or extreme weather, theft, and burst pipes. However, it won’t cover earthquakes and floods.
How much does condo insurance cost?
The annual cost of HO-6 insurance is around $478.
Across the country, the difference between the most expensive and the cheapest states for HO-6 insurance is $720 per year.
This price varies depending on a number of factors: where you live, the size of your unit, the value of your personal possessions, the type and amount of your coverage, and the insurance company.
Look for discounts
There are a handful of ways you can snag a discount on condo insurance.
If you install extra security measures such as extra deadbolt locks, smoke detectors, or a security alarm system you could get the protective devices discount. This can sometimes save you up to 15 percent.
You might also be eligible for discounts if you:
- Opt to pay semi-annually instead of monthly
- If you’re over the age of 55
- You bundle your condo insurance with an auto policy
Adams recommends getting several quotes and taking your time to shop around. When he closed on the mortgage for his condo, because he was in a time crunch he went with the first insurance company to get back to him.
After a year, he took his time shopping around, reduced his existing coverage, and managed to save hundreds of dollars a year.
Whereas he had paid $1,000 a year for $100,000 in coverage on his condo, he reduced the coverage and pays $400 a year for $45,000 of coverage.
“The coverage was more than adequate, and at a reasonable cost,” says Adams.
How much coverage should you purchase?
Keep in mind that Adams reducing his coverage isn’t a call for you to do the same. The coverage you have on your condo completely depends on your own situation.
Besides the minimum coverage, exactly how much condo insurance you should purchase depends on how much you’ll need to protect your condo in case of a disaster.
Of course, you’ll want to make sure your coverage covers major repairs and additions. But if you’re getting coverage you don’t necessarily need, that might be a waste of money.
Optional coverages to consider
Besides standard condo insurance, consider the following add-ons:
Condo insurance won’t cover floods.
If you live in a high-risk flood zone or are worried that your condo might be subject to damage from a flood-related incident, you might want to consider getting flood insurance.
Water backup coverage
Water backup coverage could be a strong option for you if your unit suffers from water-related damage.
This could happen from a drain or sewer backup from twisted tree roots or aging sewer systems.
Similarly, if you live in a part of the country that’s prone to earthquakes, earthquake insurance might be worthwhile.
Also called special assessment coverage, this comes in handy when damage to the common areas of your building exceed the master policy’s limits and condo owners must collectively pay the difference.
For example, if there was a fire in the lobby or vandalism to the outside of the building, loss assessment coverage would protect you from having to pay out of pocket to cover the damage if it went beyond the master policy’s limits.
Otherwise known as a floater or rider, an endorsement is additional coverage for high-value items in your unit that your standard policy won’t cover.
For instance, furs, art, jewelry, or other collectibles. Even though endorsements cost extra, you typically don’t have to pay a deductible before the insurance kicks in.