Owing a condominium can combine the benefits of apartment renting without many of the hassles of home ownership.Maintenance duties such as cleaning the pool, mowing the lawn or painting the outside of the building aren’t the responsibilities of individual owners, but are paid for by all the residents.However, condo owners will need a separate homeowner’s policy from their condo association policy. Each of these insurance policies covers different areas.
What group insurance covers
Under homeowners associations, condo and townhouse owners pay monthly fees to cover insurance for the condo complex and for maintenance of common areas, such as a pool, lawn, and gym.
The condo association insurance usually covers these common areas, along with building exteriors. It also provides liability insurance for the association. If the association decides to paint the outside of each condo, for example, the money would come from the association dues.
The condo association insurance policy is called the “master policy” and doesn’t include what’s inside your condo unit — such as a break-in, water damage to your kitchen walls, or someone slipping on your wet bathroom floor.
A condo policy given to each owner should detail what is and what isn’t covered by the association’s insurance policy. If you can’t decipher it, a lawyer or your real estate agent should be able to help.
Once you know what the condo association’s master policy covers and what it doesn’t, you’ll then be able to determine how much homeowner’s insurance you’ll need.
What you need to cover
The condo documents should detail what isn’t covered by the master policy. Not all master policies are the same. Typically, the exterior walls are covered by the master policy, and everything inside the walls, such as the plumbing and electrical wiring, is for your individual insurance policy. Other master policies may cover everything from the paint on the inside of your unit to the outside walls.
Your individual homeowner’s insurance policy will also cover your belongings that you keep inside your condo, along with any fixtures or improvements you make to your unit.
A key thing to remember when valuing your possessions is to consider the replacement cost in today’s dollars for new items. Do not value them at their originally cost, and definitely, or actual cash, value.
Some homeowner’s insurance policies only reimburse for actual cash value of belongings instead of the replacement costs. Actual cash value coverage is cheaper but it doesn’t cover the difference between replacement cost and their actual cash value (the amount of depreciation).
A TV you bought a few years ago for $1,500 may only have an actual cash value of $500 today. If you have cash value coverage, you’ll get $500 from the insurance company. But if you have replacement coverage, you would get the replacement value of $2,000, allowing you to buy a new TV that was equal or better than your previous one.
Insurance coverage for personal belongings and the physical building typically range from $25,000 to $100,000, with premiums at $400 to $600 per year. Owning artwork or other collectibles could require additional coverage. Liability coverage included in condo insurance will typically cost $20 a year for $300,000 in liability coverage.
Loss-assessment insurance
Another type of insurance to consider buying as a condo owner is loss-assessment coverage. This covers insurance expenses not covered by the condo association, or offers additional coverage if the group coverage is not enough
If a hurricane, for example, damages every rooftop and the condo association’s insurance coverage doesn’t cover all of the repairs, then the association may ask individual owners to pay extra.
The condo association may have loss-assessment insurance, but it may not be enough to cover the damage. If not, individual condo owners can buy their own loss-assessment coverage.
Other coverage
An insurance policy for your condo unit can also include “loss of use” coverage to pay for a place for you to stay if your unit is totaled or severely damaged by a tornado or some other disaster. The amount of coverage may be limited to a dollar value or your actual costs for up to a specified time.
Medical payments to others is another kind of homeowner’s insurance a condo owner may want. It pays for medical expenses up to the limits in the policy for people accidentally injured on your property. However, it doesn’t cover your or your family’s medical expenses.
These are a lot of coverages to consider in a home insurance policy for your condo. The best place to start is by figuring out what’s covered in the condo associations’ master policy, then determining how much it will cost to replace your belongings.