Condominium Unit Owners Insurance

Unlike a homeowner’s insurance policy, condominium (and renters) insurance policies are designed to cover your personal property and liability, not the physical structure you live in. Depending on the master policy held by your condo association, a condo policy may still include walls-in coverage for flooring, fixtures, etc.

The coverage difference is due to a key aspect of insurance, which says you must have a financial interest in something in order to benefit financially from a loss.

Simply put, as a condo owner, you do not own the building you live in. Therefore an insurance company would not pay you in the event the building was damaged. However, you do own the cabinets, carpets, etc. It would be like buying a car insurance policy for your neighbor’s car.

You can’t be sure you are purchasing the correct type of condo unit owners insurance policy until you know what type of policy the condo association has in place to insure the building you reside in. The condo association will already have a Master Policy in place, and it will dictate what property you are responsible for insuring.

What is a master condo insurance policy?

The Master Policy is the condo association’s policy. They buy it generally to cover the structure of the building, common areas, and shared walls. It will detail exactly where the condo association’s coverage ends and where yours should begin. It is absolutely necessary for you to understand this before you purchase coverage.

You will see one of the following policy types:

1. “Bare Walls” – This type of master policy DOES NOT include coverage for anything inside of, or attached to, the physical walls of the condo. With a bare wall Master Policy, you are responsible for everything other than the shared walls and the building. This does not include specific paint jobs, wallpaper, etc. This means you would need coverage for damage to any appliances, carpet, plumbing, wiring, interior (and possible exterior) fixtures and cabinets. You would also need coverage for any personal belongings, additional living expenses, and liability.

2. “Single Entity” – This type of Master Policy is more comprehensive than the bare wall option. The condo association’s policy will not only cover the building and walls, but also the carpet, appliances and cabinets. Of course, you’re still responsible for your personal property coverages. Some condos offer single entity coverage, but only to how the condo was originally built. They do not cover improvements.

Tip: There are some insurers whose condo policy will automatically “adjust” to whatever the Master Policy requires. However, you would still need to know which you have, as this will help you purchase the right amount of coverage.

Again, it is important you know exactly what type of Master Policy is in place prior to choosing which type of condo insurance policy you need to purchase. Failing to do your research and “taking a guess” could cost you a lot of money in the event of a property damage claim.

What does the condo unit owners policy cover?

There are a couple of major coverage types available for the condo unit owner’s policy. They mostly mimic the homeowner’s insurance policy, again, with the exception of coverage for the exterior walls and actual building itself and other structures like garages, storage sheds, etc. that might come with some houses. Some good news? There are a variety of websites that provide tips and more information about policies of each developer.

Personal Property – This is your personal belongings. You need to carefully evaluate the replacement cost of everything you own in order to choose the correct coverage limit for this section of the policy. This is also where you would need to consider if you are responsible for appliances, cabinets, carpet and fixtures. You will certainly want to have limits high enough to replace or repair your personal property as well as any additional items not covered by your association’s Master Policy. A renters policy might start with just $10,000 in personal property coverage. When you consider your clothes, furniture, and other belongings that fill your condo, $10,000 will come and go quickly. An insurance agent can review your insurance coverage options with you.

Personal Liability – Liability coverage would be triggered in the event you are sued for negligence that results in bodily injury or property damage to others. A Master Policy will not contain coverage for your negligent acts. For example, if someone slipped-and-fell in your unit, you could be sued in order for that individual to collect damages. Experts recommend you purchase at least $300,000 in personal liability coverage.

Medical Payments – This is a no-fault type of medical coverage that would pay a small benefit to an individual who was injured on your property. There are no lawsuits involved here and the policy limits for this type of incident rarely exceed $10,000.

Loss Of Use – This coverage is designed to pay for your additional expenses in the event you are not able to occupy your unit due to a covered loss. For example, you might have to stay in a hotel for an extended period of time if your unit was destroyed by a fire. The limits for this coverage may be expressed as a dollar or time limit. You might have a policy that offers up to $20,000 in coverage or one that may provide 12 months worth of expenses.

There can be a number of additional coverage possibilities available beyond the basics listed above, so speak to your insurance agent or insurer to determine what your options are.

Tip: You should always obtain coverage for water back-up. It is not necessarily included on these types of policies. If your property is damaged by water from a backed up sewer or drain, you would have no coverage without this endorsement.

How can you find the condo policy that meets your needs?

Not all policies are created equal. Simply reviewing the coverage limits and overall cost of a policy may not be enough to ensure your policy is adequate to properly insure you. There are many things that affect how your claims are paid when needed including any exclusions in the individual policy.

Some policies are named perils policies. In other words, claims are not covered unless they’re associated with named perils. There are also open perils policies. They offer dwelling coverage and other coverage for any peril as long as it’s not specifically excluded. Understanding your policy can help you understand what would lead your claim is denied. Then you can make a more informed decision about the policy that’s right for you.

Is “named perils” or “all perils” right for your condominium building?

Put simply, you want the all perils policy. This type of policy will cover damage to your property that results from “any direct physical damage that is not specifically excluded.” Basically, you are insured against any possible reason for damage, rather than just a few perils the insurer will cover. If you live in an area with a high risk of one hazard (such as lava damage, hurricanes, earthquakes, etc.), you should look for a policy that doesn’t exclude that peril or consider a separate policy for that peril.

The named perils option doesn’t have any exclusions because it doesn’t need them. If the damage to your property is not caused by an insured peril, it’s simply not covered.