Condominiums are different from other types of residential real estate investment properties and come with their own needs and requirements. One of these peculiarities is that they necessitate a condo insurance.
This article provides all the information that savvy investors need in order to understand the intricacies of the condominium insurance policy and how it applies to their rental business. We’ll go over what this covers and doesn’t cover, how it helps safeguard investments, how much it costs, and – finally – how to choose the best policy and provider.
Key Takeaways
- Condo insurance is a real estate property insurance that specifically protects the interior of condominium units and their owners.
- While this type of insurance is usually targeted for homeowners, there are options for condo rental insurance too.
- Insurance for condo protects the unit, personal property, loss of use, and personal liability.
- Policies need to be customized based on the property needs to balance between coverage and cost.
What Every Investor Should Know About Condo Insurance
Because of their unique structure, condos tend to be more complicated properties for both homeowners and investors than single family homes, townhomes, and apartments. This applies to the insurance that they require as well.
What Is Condo Insurance?
Condo insurance definition and uses
Insurance for condo is a real estate insurance that specifically protects condominiums (as well as co-ops) and their owners against property damage, loss of use, and personal liability. In the classification between landlord insurance vs homeowners insurance, it doesn’t fall precisely into either category.
Actually, there are a few different types of insurances for condo:
- HOA master policy that covers the outside structure and the common areas
- Condo and co op insurance for homeowners
- Condo rental insurance
The Basics of Insurance for Condo Investors
Typically, this covers the needs of homeowners who live on the property and their family members. It is not meant to operate as landlord insurance too.
This means that condo owners who plan to rent out their property for more than a few days a year while living away from their condo unit need to get additional coverage.
Understanding the Master Policy and Individual Condo Insurance
Condo associations obtain what is known as master policy.
The condo association insurance provides the following coverage:
- The physical structure of the condominium
- The common areas including the roof, exterior walls, stairways, elevators, hallways, and entertainment areas
- The grounds
- General liability for the association
However, the master policy does not cover the individual condo units and personal liability of individual owners. This is left for the condo insurance. We’ll discuss the specific coverage shortly.
The Critical Role of Condo and Co Op Insurance in Your Investment Portfolio
Whether you buy a condo to live in or to rent out, this is a real estate investment that is associated with a significant cost, reaching a few hundred thousand dollars. Moreover, both homeownership and running a rental property business come with additional risks as you, your family, your guests, or your tenants might get injured on site, leading to thousands of dollars of medical expenses or legal costs.
Thus, it’s important to get yourself the necessary level of protection with the right policy.
Risk Mitigation for Condo Investments
When it comes to investing in a condo, the saying “Better safe than sorry” applies more than ever. In other words, it’s a smart move to spend a few hundred dollars per year on the best condo insurance. Although this adds to your home owning or rental business operating expenses, it can save you a ton of money should a covered event occur on your property.
For example, if a fire breaks out in your unit and destroys a few walls and some furniture, fixing all these will cost you multiple thousands of dollars in unexpected expenses. This risks turning your positive cash flow investment property into a negative one. Meanwhile, if your condo is properly insured, you’ll need to cover just the deductible which is significantly less than the total cost of repairs.
How Condo Insurance Complements Your Investment Strategy
As a savvy investor, you have to account for the condo insurance cost on the expenses side of your rental property analysis. However, despite the cost, this is an integral part of your real estate investment strategy as it’s the only way to protect your property and yourself against a number of extremely expensive perils.
Navigating Coverage: What Does Condo Insurance Include?
The HO-6 insurance goes beyond the association master policy.
Let’s take a look at the exact condo insurance coverage and how it helps homeowners and investors.
Interior Unit Coverage
The first part of the unit coverage relates to the interior of the condo and includes things like interior walls, ceiling, flooring, cabinets, and more. Property damage is covered in case of fire, severe weather like storms and hurricanes, power surges, water damage, theft, burglary, vandalism, and more.
If you opt for condo rental property insurance, unintentional tenant damages will also be covered.
Personal Property and Liability
The second component is personal property protection. This includes furniture, appliances, electronics, clothing, jewelry, valuables, and more. They are protected even when you are away from home (on vacation), when they are left in your car, and when you are moving.
Liability Insurance for Condo
Third, as any other real estate investment insurance, this special policy protects against personal liability. If a person gets bodily injury while on your property, the insurer will pay for the relevant medical bills and legal fees. Insured individuals include you, your family members, your guests, contractors, and tenants and their guests in case you rent out and get the corresponding policy.
Loss of Use
Condo homeowners insurance covers temporary additional living expenses in case a covered event makes your home uninhabitable. While your property is being repaired, the insurance company will pay for hotel, rent, and food expenses that go above your regular living costs.
You should note that loss of rental income is not provided by a standard policy. If you rent out, you need landlord coverage for this.
Loss Assessment Coverage
The final item that makes the HO-6 condo insurance different from other real estate policies is the coverage of loss assessment. This means that condo insurance companies cover any expenses that are requested from the owner as part of damage to shared property under qualifying perils.
What Is Not Covered?
Despite being very comprehensive, there are some things that insuring a condo does not cover.
These include:
- Floods: Condo owners can add a separate flood insurance.
- Earthquakes and earth movements: You can get earthquake insurance if your home is located in an area prone to earthquakes.
- Water back-ups: Water damage from backed-up sump pumps and sewer systems can be added.
- Tenant belongings: This requires renters insurance.
- Intentional damage: Intentional acts are never included in real estate insurances.
How Much Is Condo Insurance?
The condo insurance cost varies widely, depending on multiple factors. The Hartford, one of the best landlord insurance companies in the US, reports the average annual price at $625, for a policy with personal property coverage of $60,000, liability protection of $300,000, and deductible of $1,000.
Meanwhile, Liberty Mutual, another popular real estate insurance provider, states that the price starts at $35 per month, which adds up to $420 per year.
Overall, condo and co op insurance is cheaper than regular homeowners coverage because you only pay for your unit, which excludes the roof, outside walls, common areas, and the outside area.
It’s also worth noting that the condominium home insurance cost is lower than the condominium landlord insurance cost due to the increased risks associated with renting out. Additionally, if you need to get a short term rental insurance, this might cost even more.
So, when wondering how much is condo insurance for my specific property, the main factors that affect pricing are:
- Location: The cost is higher in housing markets with excessive natural disasters and crime rates. For instance, the price of condo insurance in Florida is high due to the frequent hurricanes and wildfires.
- Property market value: Luxury properties cost more to insure as they cost more to rebuild or repair.
- Property condition: You can lower the cost by maintaining your condo in top condition as well-maintained properties bring risk.
- Personal belongings: The value of your furnishing and other items also affects the cost.
- Property safety: Having a good home security system with protective devices will help you save money on your policy.
- Coverage limits: The more you expect the insurance company to pay in case of a covered event, the higher the premium.
- Deductibles: You can lower your annual premium by raising the deductible.
Choosing the Right Condo Insurance Policy
Follow these steps to choose the right condo insurance policy
While getting insurance for a condo is a must in order to protect your investment, not all policies will do an equally good job at that. Indeed, insurance policies and companies are very different. You have to conduct diligent analysis to evaluate the needs of your property and then shop around to find the best option for your home.
A crucial factor is to work with one of the best condo insurance companies in the US market.
Our industry analysis shows that the top providers are:
- Steadily for short term and long term rentals
- State Farm condo insurance
- Progressive condo insurance
- Liberty Mutual
- Geico
- Nationwide Mutual
It’s important to get multiple condo insurance quotes from various companies and agents.
Moreover, you should work with a knowledgeable insurance agent to customize your policy to include the exact coverage that you need. While you want your property to be protected against all reasonable risks, you don’t want to overpay by getting irrelevant coverage. For example, Florida condo insurance does not need to cover earthquakes as these are not common in the area.
In this way, you can make sure your condo insurance quote strikes the right balance between coverage and cost.
Providing the Right Protection for Your Condo Investment Property
Getting condo insurance is a must for both homeowners and real estate investors to protect their property and themselves against foreseeable and unforeseeable risks. With the multitude of options available in the US market, you need to analyze your condominium, research different companies, and customize your policy to get the right coverage at the right price.
If you plan to rent out your condo on a short term or long term basis, you can check out Steadily. Created as a rental property insurance company, they offer comprehensive protection at affordable prices in all 50 states.