Condo living: What kind of insurance do I need?

For many individuals, couples and empty-nesters, there's no place like home when that home is a condo. Condos can be a hot commodity. For example, in July 2021 existing condo and co-op sales were up 22.4% compared with the previous year.

Condos offer many advantages for owners and prospective buyers. In addition to fewer maintenance demands, condos can also provide great amenities with a built-in community of friendly neighbors. Plus, they're often much more affordable than single-family homes.

But even if you call a condo home, does that mean you need homeowners insurance?

Maybe not. For many condo owners, getting a homeowners policy would mean paying for the same coverage twice — once through your policy and once through your condo association or Homeowners Association (HOA) fees.

What you need is a HO-6 policy, more commonly known as a condo insurance policy.

Read on for information about the difference between homeowners and condo insurance. You'll also learn how to evaluate your insurance needs as a condo owner to help you get the coverage you need.

What is homeowners insurance?

Homeowners insurance is designed to help protect you financially from expenses that come when your property is damaged or destroyed. A homeowners policy can include many different types of coverage. For example:

• Dwelling coverage can help pay the cost of repairing or rebuilding your home when it is damaged or destroyed by a covered loss. Dwelling insurance generally includes the interior and exterior structures of the home. It includes things like the roof, floors, walls and windows, as well as attached structures like porches and decks.
• Other structures can help cover structures that are on your property but not attached to your home, such as storage sheds, detached garages, driveways and fences.
• Personal belongings can help pay the cost to repair or replace personal property such as furniture, electronics, clothing and household goods if they're damaged in a covered event.
• Loss of use can help cover increased living expenses if you're not able to live in your home due to a covered loss, such as staying in a hotel or eating out.
• Personal liability can help cover expenses if you're held legally responsible for damage to others' property or an accidental injury.

Together, these types of coverage can help keep your life and your finances on track when the unexpected happens. Because coverage can vary, always check the specifics of your policy with your insurer.

What is condo insurance?

Condo insurance is a special type of property coverage that's designed to meet the unique needs of condominium owners.

For most condo owners, a standard homeowners policy would be overkill. Those policies are designed for single-family properties where home buyers purchase the entire structure and the land it sits on. Everything is the homeowner's responsibility.

But when you buy a condominium or own shares in a co-op complex, you're only buying one unit in a building that's shared by many owners. That can make the question of responsibility and insurance more complicated. Exterior damage can impact many units so be on the lookout for things like a leaky water system or roof. But who should be financially responsible for it?

Condos, co-ops and even some townhome communities use a combination of master policies and individual condo insurance to help owners get the coverage they need.

Condo association master policies

Typically, a condo association or HOA carries a master insurance policy that covers the condominium building. Owners then purchase condo policies to help protect what the master policy doesn't cover.

At a minimum, master policies usually cover the exterior of the building as well as any common elements like hallways, lobbies and recreational amenities. This is a Bare Walls or "Walls Out" policy because it covers everything from the walls of your unit outward.

Some condos have an Original Specifications or Single Entity policy. That means in addition to the exterior and common areas, you also have coverage for the interior of your unit, but only up to the original design of the building. If unit improvements impact the repair or replacement cost of the property, you may need additional insurance to cover the gap between the unit's original design and its new value. This is the case even if a previous owner made the upgrades.

The final type of master policy is an All-In, All-Inclusive, or "Walls In" policy. Just like the name sounds, an all-in policy covers exterior and common elements, plus the interior of each unit. And yes, even improvements to the property.

How much condo insurance do I need?

Before you buy condo insurance, you should always check the specifics of your condo's master policy and any related governing documents to see what is and isn't covered. Every policy is different, but once you know where the gaps and limitations are, you can get a better idea of how to cover them and avoid overlapping coverage.

A condo insurance policy can provide valuable protection that isn't included in a master policy, such as:

• Personal liability.
• Personal belongings.
• Loss of use.

However, if your condo's master policy offers limited or no coverage for the interior of your unit, you may want additional dwelling or building items coverage for things like flooring, plumbing, cabinets or countertops.

Also, consider coverage for assessments for shared losses. Sometimes an association will charge condo owners an assessment for repairing damage to common areas. If you're concerned about paying those unexpected costs out of pocket, this type of coverage may provide some peace of mind.

You may also be able to add coverage for identity theft, medical payments to others, and other coverages like flood insurance. Talk with your insurance provider to explore all your options.

Comparing costs: Homeowners versus condo insurance premiums

When it comes to cost, condo insurance is typically less than half the expense of homeowners insurance. According to the latest data from the National Association of Insurance Commissioners, the average home insurance premium was $1,319 per year while the average cost of condo insurance was $511.

Plus, you may qualify for additional discounts or savings. For example, with USAA, you may qualify for extra savings when you:

• Bundle condo and auto insurance,^{See note1}
• Stay claims-free for five or more years,^{See note2}
• Add home security devices to help keep your condo safe.

While your condo's master policy may cover some of the larger insurance risks, a condo policy can help reduce your risk of being underinsured.