Buying a condo is a huge decision that is coupled with excitement and responsibility. While the excitement part is something each one of us can relate to, understanding the responsibilities is crucial. Before moving into a new residence, it is essential to ensure that you have the right insurance for it.
There are ample policies related to living spaces, and each policy has its own set of implications. Therefore, it is vital to look closely into what each of these policies contain and how much insurance you, as a condo owner, must consider applying for.
One of the most crucial policies when it comes to condo insurance is the dwelling coverage.
What exactly is dwelling coverage is? And, how much dwelling coverage do you actually need for your condo?
If you need expert answers to these questions, this blog can help you through it. Learn about different aspects associated with dwelling coverage and how much of it you would require for your condo purchase.
What do you mean by dwelling coverage?
Dwelling coverage refers to the type of insurance that is responsible for protecting everything associated with the condo where you live or have ownership for. This includes pets, clothing, appliances, furniture, any other liability, etc.
The dwelling coverage that you need for your condo will depend upon the master policy of different projects. However, for a basic idea, it would be safe to say that everything in the condo that you own is protected in this condo insurance.
This coverage protects against HVAC issues, fires, explosions, etc. However, incidents like earthquakes, floods, and other such natural calamities are usually not a part of it.
Price of dwelling coverage
The pricing for the dwelling coverage will vary in different cases. One common thing in all would be that the mortgage lenders ask for a part of this dwelling coverage to protect themselves when it comes to finances. The reason behind this is quite simple. In case you fail to pay for the damages, it is a loss situation to the mortgage lender. Therefore, they would need some security or protection for themselves.
There are a few mortgage lenders who ask the condo owners to buy 20 percent of the condo’s appraised value. For instance, if your condo’s cost is $800,000, then you would be asked to cover for $160,000 as a part of your dwelling coverage. On the other hand, there are a few who base up the requirements per square foot instead. This pricing is usually around $100 per square foot.
Here’s how it will work
In case the repairs for the condo damages cost more than the dwelling coverage that you have, you will have to cover for the remaining amount. For instance, the repairs cost approximately $150,000. However, the insurance that has ownership provides coverage for $100,000. In this case, the insurance firm will cover up for only $100,000 out of it. The remaining amount of $50,000 will be for you to cover, and the firm will have no obligation regarding anything in this.
Looking into the insurance terms of the condo building
The dwelling coverage that you get for your condo also depends on the master policy of the building. The master policy insurance of the building is the insurance coverage that’s used against the repairs for damages associated with other parts of the project. This would include areas other than your own condo or apartment, such as amenity space, elevators, lobbies, etc.
There are three main types of condo insurance coverages that are available:
1) All-in (everything inclusive) type
This type provides protection for the condo’s interior as well as exterior surfaces. This means that all the installations, fixtures, additions, etc. are covered. Also, you, as a condo owner, still hold responsibility for your personal property as it affects your privacy. There are different costs in case you wish to opt for liability insurance too.
Liability insurance in terms of condo insurance means protection against accidents or any injuries that occur within the property. This type provides maximum possible protection in case of damages.
2) Special entity type
This type covers the majority of the condo structures. It is inclusive of all the fixtures in the condo. However, unit additions or structural changes are not a part of this type of coverage insurance.
3) Bare walls in type
This is the least protective of all three. It includes only the bare structure of the condo. This means that you are responsible for ensuring all your other belongings like the interiors of the condo. For instance, the coverage for bathroom, kitchen appliances, and other personal property is upon you.
Knowing about these three master policies can help you in making the right choice while choosing the ideal dwelling coverage plan for yourself.
What protection do you get when you opt for different policies for dwelling coverage?
The types of hazards that you get protection for vary according to the location of your condo, as well as the type of insurance coverage or liability claim that you have chosen for insurance.
An HO-2 policy is also commonly referred to as a named peril policy. This implies that your condo gets protection only for the perils that are specifically listed in the policy. Usually, there are 16 perils on the list.
The HO-2 policy type is not so popular anymore. This is because, under most circumstances, condo owners require and claim for better coverage than the perils specified on the list.
An HO-3 policy is the most common and widely bought type of dwelling coverage. It is also referred to as an ‘open-peril’ type or ‘all-risk’ type of insurance. As all these names suggest, this type of dwelling coverage covers the condo against all the possible perils, except the ones that are spelled out in the policy. HO-3 is a broader type and accepts a better claim.
What does a typical dwelling insurance cover?
Here’s what a typical dwelling coverage provides protection against:
- Hail or windstorms
- Theft or vandalism of any kind
- Weight of ice/ snow
- Damage caused by airplane or car
- Falling trees
- Sudden water damage
And here are a few things that are not usually covered in your insurance:
- Wear and tear due to neglect
- Slow water damage
- Government action
How much dwelling coverage should I opt for?
Your condo’s dwelling coverage depends upon the amount it would cost for making the repairs for the damages. This means that you need to take into consideration the full rebuild cost along with the labor prices. Most of the dwelling policies are of the Replacement Cost Value (RCV) type.
This means that your coverage limit is the exact replacement amount you are entitled to, without any depreciation. For additional clauses, including liability insurance or other such covers, look into the specifics with care.
Therefore, make sure you check the declaration page of your insurance properly to know proper reimbursement procedures.
The right insurance company will guide you through and provide you the best and ideal dwelling coverage that you should sign up for as a condo owner.
To get a rough estimation, here’s what you should do to anticipate the dwelling coverage:
- Find out the average pricing per square foot that is charged by home builders in a usual scenario.
- Next, multiply the area in the square footage of your condominium with this average cost.
- Calculate approximate prices for appliances, flooring of the condo, fixtures, roof, windows, cabinetry, etc.
- Add all the costs together to get an approximation of the dwelling coverage you should opt for.
As a condo owner, you need to personally look into all the possible factors associated with your condo before finalizing on the dwelling coverage for it. It is a crucial decision to make, and hence, you need to be wise while making it.
Check out different available policies that are most suited in your area, and then narrow down your options after extensive research. Also, make sure you consult an expert before making the final purchase.
Still confused? Contact the team at Precondo and we’ll be happy to help.