When I decided to buy a home in 2006, I had to figure out what I wanted. I decided, as a single female buying a home, that a condo was the way to go. I had owned two houses previously and realized that, after avoiding a lot of the work that goes along with owning a house, buying a condo was the right choice for me. Six years later, I still feel this was the best choice.
When someone is buying a home, whether in the form of a house or a condo, stress levels will be running high. A perk of my job is being able to help my clients with what can be the easiest part of the closing process—taking care of the necessary insurance policies. The differences between a homeowners insurance policy (HO-3) and a condo/co-op insurance policy (HO-6) are minor and are mainly in the Dwelling Limit, Other Structures, and the Loss Assessment coverages.
Coverage A – Dwelling Limit
A homeowners insurance policy includes coverage of physical damage to not only the interior of the house but also the exterior. A condo insurance policy protects only the interior of the condo unit, including walls, floors, and ceilings.
For a condo, the association will typically purchase a master condo policy that protects the exterior of the building and that is paid for through the common charges each unit pays. The dwelling limit (coverage A) for a homeowners policy is the value of the house minus an estimated value for land and location. The dwelling limit for a condo policy is much less and is typically estimated based on the value of any upgrades made to the unit. Don’t rely on the condo association’s bylaws. If you’ve invested in a new kitchen or bath, you could be underinsured.
Coverage B – Other Structures
The main difference between a homeowners insurance policy and a condo policy is that a homeowners insurance policy covers “Other Structures,” such as fences, detached garages, mailboxes, and so on, and a condo insurance policy does not.
Coverage D – Loss Assessment
A condo policy includes loss assessment coverage, which is not included in a homeowners policy. The coverage protects the unit owner in the event the association must assess all unit owners for uncovered costs as a result of a covered claim.
This situation could occur if, for example, a person was seriously injured and the judgment awarded was higher than the amount of insurance currently in force by the master condo policy. Another example would be if damage occurred to the common areas of the condo complex that was higher than the amount of insurance. In such a case, all unit owners could potentially be assessed to cover the costs.
Finally, the biggest difference between the two policies is the premium. A condo policy could be as low as a third of the premium of a homeowners insurance policy, depending on the size and value of the property. Talk to your insurance agent for more details.