Do You Need Homeowners Insurance for a Condo?

Owning a condominium involves a unique form of property ownership where you possess the interior of your unit, but share ownership of common areas and the building’s structure with other unit owners. This shared arrangement means that insuring a condo differs considerably from insuring a traditional single-family home. A condo’s insurance needs are layered, reflecting the distinct boundaries of responsibility between the individual unit owner and the collective condominium association. Understanding these layers is key to ensuring comprehensive protection for your investment.

Understanding the Condo Master Policy

The condominium association, the Homeowners Association (HOA), holds a master insurance policy for the entire complex. This policy covers the building’s structure, including exterior walls, roofs, and foundations, as well as common areas like hallways, lobbies, fitness centers, and swimming pools. It also provides liability coverage for incidents occurring in these shared spaces.

Master policy coverage varies, influencing the type of individual insurance a unit owner needs. A “bare walls-in” or “walls-out” policy covers the building structure and common areas, but does not cover anything inside the unit like fixtures, appliances, or interior finishes. This means the unit owner is responsible for insuring the interior of their unit from the studs inward.

Another type, the “all-in” or “all-inclusive” policy, covers the building, common areas, and including fixtures, appliances, and improvements within individual units as originally built. This policy intends to return the unit to its original condition before damage. A “single entity” policy is similar to “all-in” but may not cover improvements or upgrades made by the unit owner.

Regardless of the master policy type, it does not cover a unit owner’s personal belongings. Personal liability within the individual unit also falls outside the scope of the master policy. Master policies also have deductibles, which can range from a few thousand dollars to tens of thousands, and unit owners may be assessed a portion of this deductible in case of a claim.

Individual Condo Unit Owner Insurance (HO-6)

Despite the master policy maintained by the condominium association, individual condo unit owners need their own insurance, typically an HO-6 policy. This policy is designed to fill the gaps left by the master policy, ensuring comprehensive protection for the unit owner’s specific interests. It covers what the master policy does not, including the interior of the unit and the owner’s personal property.

While state laws do not always mandate an HO-6 policy for individual unit owners, mortgage lenders require it as a condition for financing. This requirement protects the lender’s financial interest in the property over the loan term. Even for cash buyers without a mortgage, obtaining an HO-6 policy is advisable for protecting personal assets, which often represent a significant investment.

An HO-6 policy complements the master policy, addressing areas of responsibility that belong solely to the unit owner. It covers personal property, portions of the interior unit structure depending on the master policy type, and personal liability within the unit. The average cost of an HO-6 policy in the U.S. is around $490 to $656 per year, though this can vary based on location, coverage needs, and chosen deductibles.

Key Coverages in an HO-6 Policy

An HO-6 policy provides several types of coverage for condo unit owners. Personal Property Coverage, often referred to as Coverage C, protects belongings against common perils like fire, theft, and vandalism. This coverage extends to items both inside the unit and sometimes off-premises, and while standard policies cover most items, valuables like jewelry or fine art may have specific sub-limits and require additional scheduled coverage.

Dwelling Coverage, or Coverage A, covers the interior structure of the unit. This includes interior walls, floors, fixtures, built-in appliances, and any improvements made by the owner, provided these are not covered by the master policy. The amount of dwelling coverage needed is directly influenced by the type of master policy in place; for instance, a “bare walls-in” master policy necessitates more comprehensive dwelling coverage from the HO-6 policy.

Personal Liability Coverage (Coverage E) protects the unit owner if they are found legally responsible for bodily injury to another person or property damage to another unit or common area. This coverage helps with legal fees, medical expenses, and potential settlement costs, with limits starting around $100,000, which can be increased based on the owner’s asset protection needs.

Loss of Use Coverage, also known as Additional Living Expenses (Coverage D), provides assistance if the condo unit becomes uninhabitable due to a covered peril. It covers temporary living expenses, like hotel stays, meals, and other necessary costs incurred while the unit is being repaired. This coverage is often a percentage of the dwelling or personal property coverage, commonly around 20% to 30%.

Loss Assessment Coverage is a frequently overlooked part of an HO-6 policy. This coverage protects the unit owner from special assessments levied by the HOA. These assessments can occur if the master policy’s deductible for a major claim is distributed among unit owners, or if a loss or liability claim against the association exceeds the master policy’s limits. While basic HO-6 policies might include minimal loss assessment coverage, often around $1,000. Increasing this limit is often recommended, as special assessments can be substantial, sometimes tens of thousands of dollars per unit.