Three years into owning his condo, 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.
Adams decided to contact his insurer. They had an inspector who represented his neighbor’s insurance company assess the damage. After the inspector offered an opinion on who was liable.
The inspector determined the neighbor to be responsible since the leak from his unit caused Adams’ ceiling to collapse. If he had to take on some of the liability, the inspector told Adams filing a claim with his insurer would mean a crazy spike in his premiums.
“I didn’t ask how much, as I was grateful to have no financial responsibility,” says Adams, who is the founder of Young and Invested.
So what is condo insurance and what does it cover?
Let’s dig in:
What is condo insurance?
Condo insurance covers the structure of the building, your personal items, and liability for any injuries sustained at your place. It’s very similar to homeowners insurance.
But condo insurance works slightly differently. Remember, 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 it?
The condo association will require that you pay a premium for a master policy and hop on a policy for individual liability.
If you have a mortgage for your condo, the lender requires you carry condo insurance.
An individual policy lets the association and your lender know that you can repair damage to your condo in the case of a disaster.
What does a master policy for condo insurance cover?
You should find out how the master policy works, even though your condo board is responsible for arranging it. That way you know about any gaps in coverage you need to fill.
Depending on the type of master policy, it might only cover:
1. The exterior structure of the building
2. Collective areas in the 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 only covers the ceiling, floor, and walls. It can also cover furniture and fixtures in the common areas. Think of it as protecting the shell or skeleton of your condo.
It means you’re also responsible for everything else: the plumbing, wiring, lighting fixtures, and kitchen cabinets.
This 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 its original condition.
This is the most comprehensive coverage. It protects collective property or property that’s part of the structure of condo, plus any improvements and additions made to the condo.
How can you find out what a master policy covers? Check your association’s bylaws. You can also ask your condo board, condo association, or an insurance rep.
What does an individual policy cover?
Also known as HO-6 insurance, an individual policy for condo insurance protects possessions such as furniture and clothing. Stand-alone appliances are also covered. Plus, it can include any structural elements of your condo that aren’t covered in your master policy.
An individual policy might also cover additional living expenses (ALE). It reimburses you for meals or your stay in a hotel while your condo is being repaired.
Note: You’ll only get reimbursed for expenses that are comparable to your standard of living.
While an individual policy is known as “walls-in” coverage, a master policy only covers common areas.
It covers damage from perils such as fire, extreme weather, theft, and burst pipes. But, it won’t cover earthquakes and floods.
How much does it 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:
- Where you live
- The size of your unit
- The value of your possessions
- The type and amount of your coverage
- Your insurer
Look for discounts
There are ways to get a discount on condo insurance.
Look into installing security measures. Think: deadbolt locks, smoke detectors, or an alarm system. You could get the protective devices discount. This can sometimes save you up to 15 percent.
You might be eligible for discounts if you:
- Pay semi-annually
- If you’re over the age of 55
- You bundle your condo insurance with an auto policy
Adams says to take your time shopping around. When he closed on the mortgage for his condo, he went with the first insurer to get back to him.
After a year, he took his time shopping around. He reduced his coverage, and saved hundreds of dollars a year.
He used to pay $1,000 a year for $100,000 in coverage. But he reduced the coverage and now 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 depends on you.
How much coverage you buy depends on how much you’ll need to protect your condo in case of a disaster.
You’ll want to make sure your coverage covers major repairs and additions. But if you’re getting coverage you don’t need, that might be a waste of money.
Other coverages to think about
Besides condo insurance, consider add-ons:
Condo insurance won’t cover floods.
If you live in a high-risk flood zone, you might want to consider getting flood insurance.
Water backup coverage
This coverage is a good option if your unit suffers from water-related damage.
This could happen from a drain or sewer backup from aging sewer systems.
Earthquake insurance might be worth it if you live somewhere prone to them.
It comes in handy when damage to the common areas of your building exceed the master policy’s limits. And condo owners pay the difference.
Let’s say there’s a fire in the lobby. It protects you from having to pay out of pocket to cover the damage if it went beyond the master policy’s limits.
Also known as a floater or rider, this is extra coverage for high-value items that your standard policy won’t cover.
This would be things like furs, art, jewelry, or other collectibles. Even though it costs extra, you don’t have to pay a deductible for it.