Acquiring an investment is a significant financial decision and equally so is the protection of said investment. This very logic holds true for a real estate buy and hold investor who purchases a condominium. Insurance is a necessity; however, it’s important to keep in mind there are different insurance policies for condominiums versus single-family homes. Making sure the appropriate coverage is in place can mitigate risk of any future loss or damage to this rental property.
Understanding the Terms of Your Policy
Coverage options and availability vary for different property types and are defined in the terms of your individual policy. For instance, the coverage on a condominium is not the same as coverage on a single-family home and is also dependent on the property’s classification as a primary residence or a rental property.
The main objective is … Carefully read and understand the conditions and terms of any insurance policy to ensure your investment is adequately covered – but particularly for condominiums – before signing on the dotted line.
HOA Coverage vs. Personal Property Coverage
A major difference in insurance for a condominium as opposed to that of a single-family home is individual condo owners share insurance liability with the homeowners’ association. It is important to note what specific events and damages are covered by which policy.
Personal property coverage typically includes:
- The entirety of the interior structure, beginning with the studs and proceeding inward, falls under the individual condo owner’s personal property insurance. This includes damage to the electrical, plumbing, floors, drywall, fixtures and appliances, etc. If, however, the condo is a rental property, you are not responsible for personal belongings within the unit and this will lessen the amount of coverage you require in this particular area.
- Loss assessment coverage protects against damage to HOA-owned common areas. If damage to HOA property is excessive and surpasses covered losses, it may be necessary for HOA members to make up the difference in order to cover the cost of repairs. Coverage of this nature will eliminate the need for you to pay any out-of-pocket expenses. Pools, elevators, and common or recreation areas are examples of HOA property that might fall under loss assessment coverage.
- Liability coverage provides protection if a person is injured or their belongings are damaged within the condominium you own. If you are found to be responsible for injuries or damage, liability coverage will assist with bills.
- Should the condo not be fit to live in because of a loss otherwise covered by your personal property policy, loss of use coverage will provide fair rental value of the property.
HOA master insurance policies usually provide for the following:
- Exterior structures including roofs, exterior walls and fences generally fall under the homeowners’ association policy. This is not always the case, however, so be certain to read and understand the terms of your HOA’s specific policy. Grounds, common areas, community buildings and shared amenities should be covered under the HOA master policy, also.
- Coverage for damages related to a natural disaster (i.e., flood, water) should be taken into consideration, as well. Determine if flood insurance is required for your condominium and if the community in which you are looking to buy follows FEMA’s recommendations under the Homeowner Flood Insurance Affordability Act of 2014. If the homeowners’ association policy does not contain flood insurance, make sure you’re appropriately covered with your personal policy.
HOA policies vary by the particular needs of each individual association. It’s important to understand not only the coverage provide in the master insurance policy but also the bylaws of the HOA. If a management company assists the homeowners’ association, they can be a good resource for information regarding specific policies and coverage.
Location, age of structure and susceptibility to natural disasters are just a few of the factors in play when insurance premiums are determined. For instance, if the condominium is located in a neighborhood known to flood, you probably will pay more for your policy. The National Association of Insurance Commissioner’s Homeowner’s Insurance Report is the most comprehensive collection of homeowners insurance data in the world. If you’re interested in learning how your region fares, this report provides the most recently validated data on market distribution and average cost by policy form and amount of insurance.
Soliciting more than one quote will ensure you are able to compare coverage options against price and deductible and select the policy that will work best for you. There are many large insurance companies who can provide condominium coverage; however, you might consider consulting your local business association to find a highly rated local insurance company or ask friends and acquaintances for a referral.
Insuring your new investment property with the right policy and appropriate coverage is the best way to guarantee peace of mind and save money in the long-term. Remember to ask for the homeowners’ association’s master insurance policy; ascertain if flood insurance is necessary; and compare multiple quotes before deciding on a policy.