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Condo insurance: How much is enough?

By Posted : 10/20/2015

Condo buildingsWhen you own a condominium, some of your insurance burden is taken on by the condo association. But you'll need your own individual homeowners insurance policy to cover the rest.

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How much home insurance do you need to protect your condo?

Condo association insurance typically covers building exteriors and common areas. However, this insurance – known as the "master policy" – doesn't cover what's inside your specific unit. It also may not cover all damages outside your unit.

To know what is and isn't covered, check the details of your condo policy. Figuring out where the condo association's master policy ends and your policy begins is the first step in determining how much coverage you'll need.

"Generally the way it works is the condo owner's policy dovetails with the master policy," says Eric Goldberg, associate general counsel for Washington D.C.-based American Insurance Association. "Where the lines are drawn is dictated by the condo documents."

According to Goldberg, some condo documents place the coverage dividing line between the middle-part of the exterior wall. This means that everything outside of the exterior wall is covered by the master policy, while everything inside the walls, including plumbing, is covered by the unit owner's individual policy.

In other condominiums, the master policy covers everything from the paint on the inside of your unit to the outside walls of the building.

Knowing what the master policy covers can help you purchase the proper individual home insurance policy coverage, says Doug Foulks, a product manager at Columbus, Ohio-based Nationwide Insurance.

Reading through the condo documents can be difficult. Foulks says master polices vary and can be from one to 100 pages long.

"Sometimes they are easy and straightforward and other times they can be complex, where you almost have to be a lawyer" to understand them, Foulks says.

Value stuff before buying home insurance

Once you understand what you need to cover, the next step is coming up with a value for your belongings inside the unit.

"A lot of people underestimate how much stuff they own," says Ben Schuam, a product manager at Mayfield Village, Ohio-based Progressive Insurance.

When trying to value your belongings, consider what it would cost to replace them in today's dollars, Schuam says.

Your homeowners insurance also has to cover the cost of replacing fixtures and other interior items, such as granite countertops, high-end cabinets and expensive wood floors. All of that needs to be included in your calculation.

One typical mistake condo owners make is taking out coverage that reimburses the actual cash value of their belongings instead of a policy that covers the replacement costs, Schuam says. Actual cash value coverage is cheaper but it doesn't reimburse depreciation of your items, he says.

For example, a flat-screen TV purchased several years ago may only have an actual cash value of $500. That means you'll only get $500 from the insurance company instead of the replacement value of $2,000 that you'll need to buy a new TV.

"People tend to underestimate the cost to replace all the stuff," he says. "We are not talking about what it's worth today, but what it costs to replace it new."

Schuam says the amount of separate insurance you can take out to cover the physical aspects and personal content of your condo typically ranges from $25,000 to $100,000. Premiums range from around $400 to $600 a year.

If you have precious artwork or other collectibles in your condo, you can take out more than $100,000 in coverage, he says.

The liability portion of the condo insurance is the cheapest, according to Schuam, and can cost around $20 a year for $300,000 in liability coverage

Consider loss-assessment insurance

In addition to buying standard homeowners insurance, consider loss-assessment coverage. When you own a condominium, you are a member of the condo association. Along with the other residents, you collectively own the common areas.

"A common mistake is not understanding the relationship of the owner of the condo to the association," Foulks says.

If a hurricane blows out all of the windows in the common areas or the roof is damaged in a hail storm, you may have to pay portion of the repairs if the condo's association's policy doesn't cover it.

"Depending on the type of loss, the condo association can go back against the owners of the condo…and everyone would have to pay their part," Foulks says.

If the condo association's loss assessment policy isn't expansive, you can buy additional loss assessment coverage, he says.

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