What is condo insurance, and what does it actually cover?

Create a mashup between a traditional single-family home and an apartment home and might get a condominium.

Condos are usually occupied by their owner, like a single-family home, but they share walls and common areas with other units, like an apartment.

This in-between nature of condos extends to how these homes get insured. If you're buying a condo, you'll need a specific type of condo insurance. 

What is condo insurance?

Condominium insurance, also known as an HO-6 policy, works together with the condo association's master policy to protect the value of condo unit and its contents. Generally, condo insurance covers the interior of a unit while the condo association's policy covers common areas and shared spaces.

So, unlike a typical homeowners insurance policy, an HO-6 policy doesn't cover the roof, the exterior, or the parking area. Unlike a renters insurance policy for an apartment dweller, condo insurance covers more than just personal belongings.

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How HO-6 Policies Work

More specifically, an HO-6 policy covers:

• your unit's interior structure: interior walls, floors, ceilings, fixtures, appliances. This part of an HO-6 policy is often called dwelling coverage.
• your personal belongings: clothing, furniture, electronics.
• your liability: in case someone sues after getting injured at your home.

Insurance companies use terms like "protect" and "safety" in their advertisements, but it's worth noting that no insurance policy can prevent bad things from happening. Theft, vandalism, fire, or water damage could still damage or destroy your condo. Adequate insurance coverage exists to reimburse you the value of your losses. 

More about condo insurance vs. homeowners insurance

Understanding your condo association's master policy

How much coverage you need to buy depends on what kind of coverage your association's master policy provides. Master policies come in three types:

• "Bare walls" coverage which protects only the building's exterior and common areas like lobbies, elevators, and pools. You'd need more dwelling coverage for cabinets, appliances, and fixtures.
• "Single entity" coverage includes original fixtures and equipment in your unit, reducing your individual coverage needs.
• "All-in" coverage extends to structural improvements and additions you've made, providing the most protection at the association level.

To find your association's level of coverage, ask the HOA's officers or check its bylaws. Knowing the master policy's coverage level can help you avoid buying too much, or not enough, coverage.

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Why is condo insurance needed?

Your association's master policy creates a foundation of protection, but five important gaps remain that only an individual condo insurance policy can fill.

Dwelling coverage: interior walls, fixtures, and improvements

Dwelling coverage protects the physical structure inside your unit, everything from the Drywall inward that your association's policy doesn't cover. The amount of coverage you need depends on the value of your home and your master policy type.

A "bare walls" master policy leaves you responsible for cabinets, appliances, flooring, and fixtures. If a pipe bursts and causes $15,000 in damage to your kitchen, you'd need to file a claim with your HO-6 policy. 

But if your master policy provides all-in coverage, the master policy could pay to replace the cabinetry, flooring, and Drywall, even if you installed them yourself after buying the condo. 

Personal property coverage: belongings inside your unit

Personal property insurance protects everything you own: your furniture, electronics, clothing, sports equipment, and appliances. Standard policies typically offer actual cash value coverage, which factors in depreciation.

For example, if thieves steal your three-year-old laptop originally worth $1,200, actual cash value coverage might pay $600 after depreciation. Replacement cost coverage would pay the full $1,200 to buy a comparable new laptop.

Liability coverage: injuries and property damage to others

Liability protection shields you when accidents happen in your unit or you accidentally damage someone else's property. If a guest slips on your wet bathroom floor and breaks their wrist, liability coverage handles medical bills and potential legal costs.

This protection extends beyond your unit. If your dog bites someone at the dog park or you accidentally damage a neighbor's property, you'd be covered.

Loss of use: temporary living expenses

When a covered claim makes your condo uninhabitable, loss of use coverage pays additional living expenses until repairs are complete. This includes hotel bills, restaurant meals, pet boarding, and other costs above your normal living expenses.

If a fire forces you to live in a hotel for two months while repairs are made, this coverage handles the extra costs.

Loss assessment coverage: shared property damage costs

When association damage exceeds the master policy limits, unit owners receive special assessments to cover the shortfall. Loss assessment coverage helps pay your share of these unexpected costs.

Standard policies often include $1,000 in loss assessment coverage, though you can purchase higher limits for better protection against major building damage claims.

What is not covered by condo insurance?

Condo insurance helps protect your investment, but it won't cover every loss. For example, neither the condo's master policy or your HO-6 will cover: 

Floods and earthquakes

Your HO-6 policy excludes flood and earthquake damage. A burst pipe that floods your unit? That's covered. But rising water from a storm that damages your floors and personal belongings? You'd need separate flood insurance, typically purchased through the National Flood Insurance Program or private insurers.

Same goes for earthquake coverage. You'd need a separate policy for earthquakes if you live in a seismically active area. Without this extra protection, rebuilding costs after a major earthquake come from your pocket.

Wear and tear or poor maintenance

Insurers expect you to maintain your unit properly. You typically can't file a claim for water damage from a leaky faucet you never got around to fixing. Failing to replace an old appliances or fix known issues can void coverage when those problems cause damage.

Pest infestations and mold

Termite damage, rodent infestations, and mold problems typically fall outside your policy's scope. If pests destroy your hardwood floors or mold spreads due to poor ventilation, expect to pay repair costs yourself.

However, if mold develops after a covered water event, like that aforementioned burst pipe, your policy may cover mold remediation, up to your policy limits.

Intentional damage or negligence

Deliberately damaging your unit voids coverage entirely. Gross negligence also puts claims at risk. Leaving your unit unattended for months during winter without heat, leading to frozen pipes, could result in a denied claim.

Preventive maintenance

Some homeowners expect their insurance policy to pay for preventive maintenance like removing trees that might fall on the home some day. That's not how property insurance works. Insurance protects homeowners from losing value after the tree falls.

How much does condo insurance cost?

Condo insurance costs about $500 to $600 a year on average, but it can vary a lot. Some condo owners pay $200 to $300 a year while others may pay $1,000 or more annually.

Costs depend on your coverage needs, your location, and your association's master policy type. Your premium costs reflect the gap between what you need to protect and what your association already covers.

Dwelling coverage varies based on your association's policy. With "bare walls" coverage, you'll pay more to insure cabinets, appliances, and fixtures that aren't covered by the master policy. "All-in" policies reduce your dwelling coverage premiums.

Personal property limits should match the value of your belongings. Create a home inventory to calculate this accurately. If your possessions total $75,000, buy at least that much coverage. Underinsuring leaves you paying the difference after a claim. 

Liability coverage typically ranges from $100,000 to $500,000, with higher limits increasing costs. Loss of use coverage usually equals 20% of your combined dwelling and personal property coverage.

Coverage add-ons to consider

Adding extra coverage to an HO-6 will usually increase premiums. Still, they're worth considering for many new condo owners:

Water backup coverage

Standard policies exclude damage from backed-up drains or sump pump failures. This endorsement fills the gap, especially in multi-unit buildings where water claims happen a lot.

Replacement cost for personal property

Basic policies usually pay actual cash value, which factors in depreciation. Replacement cost coverage costs more but pays full replacement value. So, your 5-year-old laptop gets replaced with a new one, not the cost of another 5-year-old laptop.

Scheduled personal property endorsements

A standard policy may not provide enough coverage for high-value personal property like jewelry, art, or unique collectibles. This add-on provides specific protection for valuable possessions beyond standard limits.

Umbrella liability insurance

Umbrella policies extend liability protection beyond your condo policy limits, shielding your assets from major lawsuits. For condo owners with significant assets, this extra layer offers peace of mind.

Short-term rental coverage

Renting your unit through platforms like Airbnb requires special protection. Standard policies don't cover risks associated with short-term guests, making this endorsement essential for earning rental income.

How to reduce condo insurance costs

Condo owners can cut their insurance premiums by:

Raising the deductible

The homeowner has to pay the deductible before the condo insurance policy pays on a claim. With a $500 deductible, you'd pay $500 out of pocket on a repair or replacement before the insurance started paying.

Raising this deductible from $500 to $1,000 typically reduces premiums by 15 to 25 percent. In return, you'd pay more out of pocket to repair damage or replace items.

Bundling policies

Getting multiple types of coverage from one insurer can lower costs for all the policies. Bundling auto, life, and condo together, for example, may save 10 to 15 percent a year. Most insurance companies allow bundling condo coverage with an umbrella policy. 

Security improvements

Upgrades like a sprinkler system, a burglar alarm, and water leak sensors can qualify you for premium reductions. Since water damage claims are common in condos, leak detection systems particularly appeal to insurers.

Shopping around

Premiums for the same coverage can vary widely between different companies. The same coverage might cost $400 annually with one insurer and $600 with another. Request quotes from at least three companies to compare rates.

Better Cover can make shopping around easier by showing multiple quotes in response to a single application.

Reviewing coverage annually

Your coverage needs change from year to year. Reviewing your policy to eliminate unnecessary protections can save money. Reviewing also prompts you to increase coverage if needed.

Asking about discounts

Some offer reduced rates for retirees, military members, professional associations, or claims-free records, but won't apply them unless you ask about them. These discounts could reduce your premium by 10 percent or so without changing your coverage.

FAQs about condo insurance

What does a standard condo insurance policy typically cover?

A standard condo insurance policy typically covers your unit's interior structure, personal belongings, liability protection, and additional living expenses if you have to move out, temporarily, because of damage to the unit. A standard policy also includes loss assessment coverage for shared property damage costs.

Is condo insurance mandatory?

Condo insurance isn't required by law, but if you're financing the condo, your mortgage company will require you to keep a policy in force. In fact, the mortgage loan servicer will probably add condo insurance premiums to your loan's monthly payment.

How much condo insurance coverage should I have?

Your condo insurance should cover the full cost of rebuilding your unit's interior and replacing all your personal belongings. For liability coverage, aim for at least $100,000, or ideally enough to cover your net worth.

What's the difference between "all-in" condo association coverage and individual condo insurance?

An "all-in" condo association policy typically covers the building's exterior and some interior features of your unit, like fixtures and flooring. Your individual condo insurance fills the gaps, covering your personal belongings, liability, and any improvements you've made to the unit.

How can I reduce my condo insurance costs?

You can lower your condo insurance premiums by increasing your deductible, bundling policies with the same insurer, installing security devices, comparing quotes from multiple companies, and reviewing your coverage annually to eliminate unnecessary protections. Also, ask about available discounts for having claim-free history or professional affiliations.

How much are condo payments?

Payments vary by loan amount, interest rate, and other variables. See today's rates and experiment with a mortgage calculator here.

Protect your condo investment with the right coverage

Hopefully you'll never need to file a condo insurance claim. But it's still essential to have the right coverage just in case. In fact, lenders will require you to keep adequate condo coverage in force.

Better Cover can help connect you with a variety of coverage options so you can compare policies and find the right one.

Better Mortgage, of course, can finance the purchase using a digital process from start to finish. 

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