Condo Insurance 101

“Dominium” is a Latin word (modern spelling: “dominion”) that means right of ownership. “Con” means together with. And so we get the term “condominium,” or “condo” for short, denoting a system of ownership in which owners have full title to an individual apartment or town house, and an undivided interest in shared parts of the property (undivided meaning, in this case, that the ownership is shared and cannot be divided into parts).

While condominium insurance is in some ways the same as homeowner’s or renter’s insurance, there are some consequential differences (if you’re a renter, see these 6 Reasons You Need Renter’s Insurance). This article discusses what you should be aware of with respect to insurance if you own, or will soon be the owner of, a condominium.

The Master Policy

The individual owners of properties that make up a condominium complex have a collective responsibility to insure common areas, so the condo association purchases an insurance policy known as the master policy. Funds to pay for this policy come out of dues paid by all unit (apartment or town house) owners within the complex.

As a unit owner or potential unit owner, the first thing that you need to do to understand your insurance needs is to obtain a copy of the master policy for the complex, along with the association rules. These documents should absolutely be provided to you if you are contemplating purchasing a unit in a complex. They spell out what parts of the complex are insured by the master policy and what parts are not.

Though there are a thousand and one variations, broadly speaking there are two types of master policies: “bare walls in” and “all in.” In general, “bare walls in” policies will cover all real property from the exterior framing inward, but not the fixtures and installations inside the unit. Note that “real property” refers to land and buildings—buildings meaning structures themselves and not what is known as “personal property,” the things that are in the buildings. In a “bare walls in” policy, even things that can feel like they are part of the building, like the granite countertop you installed or fixtures like kitchen cabinets, are most likely not insured. Some policies will cover plumbing and wiring, but not all—look over your policy carefully.

“All in” policies, on the other hand, offer broader coverage and usually include items such as appliances (refrigerator, stove, hot water heater), wiring, plumbing, carpeting, countertops, lighting, and flooring.

Before you and your insurance broker or agent can properly assess your personal condo insurance needs, you need to know what the master policy covers. As I mentioned above, the complex you own a unit in or are contemplating purchasing a unit in should absolutely provide you copies of the master policy and the association rules so that you can, in turn, purchase adequate insurance.

HO-6 Policies

The individual policy you will purchase is commonly known in the industry as an HO-6 policy. As is the case with homeowner’s and renter’s policies, it covers:

• Personal property, such as books, computers, and furniture (see Personal Property Floaters 101 to learn how to extend your coverage)
• Personal liability, typically for everything from slip-and-fall accidents on your property and libel or slander to a rock thrown by your ten-year-old
• Damage to or loss of use of your unit caused by fire, storm, and a number of other perils (see 5 Water Damage Home Insurance Scenarios to find out what kind of water damage is typically covered)

As is the case with homeowner’s and renter’s policies, you need to discuss your individual needs with your broker or agent, being sure to include matters such as high-value items like jewelry or art, and special subjects such as flood coverage (see What Is an Insurance Broker? to find out how working with a broker can benefit you).

A good general approach to evaluating HO-6 policies is to start by asking “what does it cover with respect to personal property?” With a homeowner’s policy the first consideration is usually coverage of the structure. But when it comes to condos, the master policy covers the structure, so the purpose of an HO-6 policy is first and foremost to cover what you own within the structure, along with liability coverage.

Among other things, be sure to understand whether coverage is cash-value or replacement cost. Cash-value policies are cheaper because you are covered only for what an item would cost today less depreciation for how old it is. With replacement cost policies you get the actual price you pay to replace the item.

Deductibles or Exclusions in the Master Policy

While a master policy tends to provide broad coverage, there will almost assuredly be at least a few deductibles and exclusions. Most HO-6 policies offer what is called “contingent insurance,” which provides coverage for shortfalls in the master policy. That is to say, if a liability arises in a common area of the condo complex and you are sent a bill (often called a “special assessment”) for your share of the loss due to a deductible or exclusion in the master policy, contingent insurance covers you. It is usually in the amount of 250% of the personal property limit in your HO-6 policy or $50,000, whichever is greater.

Don’t Be Caught Short

As with all insurance, work with a qualified broker or agent to determine your needs, and bring the master policy and association rules with you (if you don’t have a broker or agent yet, come prepared with these 5 Questions to Ask Before Choosing an Insurance Agent).