Do I Need Condo Insurance?

by Christian Dexter of Carroll Steele Insurance

I just got off the phone with a potential client who, during our conversation, told me he didn’t have a condo insurance policy because he no longer had a mortgage. I asked why he thought this way and he told me it was no longer necessary because he didn’t have a mortgage and the bank no longer required it. After taking a deep breath out of concern I slowly explained the importance of a Condo Insurance policy whether or not you have a mortgage.

It seems that quite a few people don’t understand what condo insurance provides and as our conversation continued I began to understand why. One reason, at least in this instance there is some confusion about the Condo Associations Master policy and its level of coverage when it comes to condo owners and their condos within the association. The bottom line is some Condo Associations will set up the Condo Association documents to cover loss to the structure as a whole – including the individual condominiums. This means that if there was a total loss, the Condo Association’s Master Insurance policy would cover the cost to rebuild the entire structure including all the condominiums within it. However, not all Condo Association documents are written this way and sometimes it is up to each individual condo owner to cover their condo unit from loss. This is a very important factor that all condo owners need to be aware of and something I’ll talk further about later in this article.

Condo Insurance coverage – Liability coverage
Before we even begin dissecting what a Condo Association master policy may or may not cover, let me first make the point that you will always need a condo insurance policy to provide you personal liability coverage. There are three main points of coverage in a condo policy: dwelling (covers the inner structure of your condo unit), personal property and personal liability. Sometimes a Condo Association Master Insurance policy will provide dwelling coverage. Personal property and personal liability, however, can only be covered under a personal condo insurance policy.

Personal Liability is financial protection for actions by you that might harm another. For example, let’s say you have a party in your home and a friend of a friend (we assume a friend would never sue) trips over your coffee table and tumbles down the stairs. A few days later you receive a letter from his attorney stating he wants to sue and is asking for $100,000 to cover his injuries. If you have a condo insurance policy with at least $100,000 in personal liability coverage you are financially protected. However, without a condo policy you are on your own and will continue to be at risk and vulnerable when ever someone walks into your condo.

Condo Insurance Coverage – Personal Property
Personal property covers all your personal items. A washer and dryer, clothes, computers, television and your beloved Wii would all be covered under personal property insurance under a condo insurance policy. Other things like jewelry and money is also covered, but with limited coverage amounts for each. When I get people to actually think about it most are amazed how much personal property they have and what it would cost to replace it. On average, most people carry $25,000 to $50,000 of personal property coverage, however, everyone’s situation is different and it’s recommended to do an assessment of your personal property to determine a level of coverage.

Condo Insurance Coverage – Dwelling
A Condo Insurance policy also provides coverage for damage to your condo from covered perils such as a fire. So let’s say you had a terrible kitchen fire and your cabinets and appliances were completely destroyed. If you had dwelling coverage on your condo policy then this coverage would pay to restore your kitchen – assuming you carried enough coverage. Determining the right level of dwelling coverage depends on several factors. For a rough estimate of how much dwelling coverage you need estimate anywhere between $100 and $300 a square foot. The amount per square foot depends on where you live and the cost of construction. In Massachusetts, I usually use $200 per square foot for average and $250 per square foot if the condo has a custom kitchen or other above average amenities. I like to play it safe so I over estimate when it comes to condo insurance. The premiums are relatively lower compared to home insurance so it’s financially feasible to be safer than sorry.

Isn’t My Condo Covered Under The Condo Associations Master Policy?
Maybe. And even it does, no condo association master insurance policy covers your personal property, or personal liability risk within your condo.
A Condo Association Master policy purpose is to provide liability and building coverage for the general structure of the condominium complex and its surrounding property. If someone were to get injured in a common area or maybe out in the back lawn of the property, the Condo Association Master insurance policy would cover any resulting liability claims or damage to the building.

Is It An ‘All Inclusive’ Master Policy?
Recently, Condo Associations have been buying policies that are ‘All Inclusive.’ What this means is that the policy considers the building along with the individual condominiums within it as one. Therefore, an ‘All Inclusive’ master policy will cover damage to your condo from an insured peril such as a fire. If the policy does not have this type of coverage then it is up to you the condo owner to add dwelling coverage to your policy. However, it’s still important to have some level of dwelling coverage especially if you’ve made some improvements to the condo that might increase its value beyond the average condo in the complex might have (ie: custom kitchen). Furthermore, Condo Associations try to determine the proper coverage for the building, but if they happen to fall short of the actual cost to replace the entire building including your condo, it’s a nice safety net to have that additional $50,000 or so dwelling coverage on your own condo insurance policy.
It’s important to remember that even if your Condo Associations master insurance policy covers your condo for fire and other covered losses it still does not protect your personal property or provide personal liability. You will be taking a huge financial risk if you don’t have condo insurance.