Why Your Condo Insurance is So Cheap: You’re Only Insuring from the “Walls-In.”
You Don’t Own the Building. You Don’t Need to Insure It.
I was shocked when the insurance quote for my new condo was only $30 a month. My homeowners policy for my old house was over $150. My agent explained the simple reason. As a condo owner, I don’t own the physical building, the roof, or the foundation. The condo association owns that, and they insure it under a massive “master policy.” My personal HO-6 condo policy only has to cover my own personal risks: my belongings, my interior walls, and my personal liability. It’s much cheaper because I’m insuring a much smaller piece of the puzzle.
Homeowners vs. Condo: One Covers the Roof and Foundation, The Other Covers Your Unit.
The Fundamental Difference in What You Are Protecting.
A homeowners insurance policy (like an HO-3) is designed to protect an entire, standalone structure. It includes a massive amount of “Dwelling Coverage” to rebuild the entire house from the foundation up. A condo insurance policy (an HO-6) is designed for a unit owner. It has zero coverage for the main building structure. Its primary purpose is to cover your personal property and the interior of your unit, from the drywall and floors inward.
The Master Policy: How the Condo Association’s Insurance Works With Yours.
The Two Policies Are a Team.
Think of it as a two-part system. The Condo Association’s Master Policy is the primary insurance for the building itself. It covers the roof, the exterior walls, the hallways, and the shared amenities. Your personal HO-6 Condo Policy is your own, secondary insurance. It picks up where the master policy leaves off, covering your personal belongings, your interior finishes, and your personal liability. The two policies are designed to fit together like puzzle pieces to create a complete picture of protection.
Loss Assessment Coverage: The Condo Rider That Protects You When the Master Policy Isn’t Enough.
My Neighbor’s Fire Cost Me $5,000.
A fire in my condo building caused a huge amount of damage to the common areas. The condo association’s master policy covered most of it, but it had a massive $50,000 deductible. The condo board passed that deductible on to all the unit owners as a “loss assessment.” I received a bill for my share, which was $5,000. Thankfully, my HO-6 policy had “Loss Assessment Coverage.” I filed a claim, and my own policy paid the $5,000 for me. It is the single most important endorsement a condo owner can have.
A Fire Destroys Your Building. Who Pays for What?
A Clear Division of Responsibility.
Imagine a fire guts your entire condo building. Here’s how the insurance would respond. The Condo Association’s Master Policy would pay to rebuild the entire structure—the roof, the exterior walls, the hallways, the lobby. Your personal HO-6 Condo Policy would then pay for you. It would pay to replace all of your personal belongings (furniture, clothes), to rebuild the interior of your specific unit (drywall, cabinets, flooring), and to pay for you to live in a hotel while the building is being rebuilt.
Don’t Overpay for Coverage You Don’t Need. A Condo Owner Doesn’t Need Dwelling Coverage.
The Common Mistake That Wastes Money.
Sometimes, an inexperienced agent will try to sell a condo owner a full homeowners (HO-3) policy. This is a massive mistake that will cause you to overpay by a huge amount. An HO-3 policy includes a very high limit of Dwelling Coverage to protect the main structure. As a condo owner, you do not need this. You are paying a huge premium for a benefit you can never use, because the master policy already covers the building. You need an HO-6, which is specifically designed for your “walls-in” risk.
How to Read Your Condo Bylaws to See What You’re Responsible For.
Your Insurance Needs Are Spelled Out in a Legal Document.
Before you buy condo insurance, you must get a copy of your condo association’s bylaws and master policy. This legal document will spell out exactly what the association’s policy covers and what you, the unit owner, are responsible for. It might be a “bare walls” policy, meaning you are responsible for everything inward from the studs. Or it might be an “all-in” policy. You cannot buy the right amount of insurance without first reading this document to understand your specific contractual obligations.
The Key Differences: Coverage A, Coverage B, and Loss Assessment.
A Homeowners Policy vs. a Condo Policy.
A Homeowners Policy has high limits for Coverage A (Dwelling) and Coverage B (Other Structures). It has no need for Loss Assessment. A Condo Policy (HO-6) has a small amount of Coverage A (for your interior), no Coverage B (you have no other structures), and a crucial need for a high limit of Loss Assessment coverage. The entire structure of the policy is fundamentally different, reflecting the unique nature of condo ownership.
From a Single-Family Home to a High-Rise: Tailoring Your Policy.
Matching the Product to the Property.
Insurance is all about matching the right product to the right risk. A single-family home, where you own the entire structure and the land, requires a comprehensive homeowners policy. A condominium, where you own the air inside your unit and share ownership of the common elements, requires a specialized condo policy. Using the wrong policy for your type of ownership can lead to massive, uninsured gaps or a huge waste of money on premiums.
The Most Common Mistake New Condo Owners Make With Their Insurance.
Assuming the Master Policy Covers Everything.
The single biggest and most dangerous mistake a new condo owner can make is assuming that the monthly HOA fee they pay covers all their insurance needs. They think, “The association has insurance, so I’m covered.” This is completely false. The master policy provides zero coverage for your personal belongings and your personal liability. If you don’t buy your own, separate HO-6 policy, you are leaving your entire net worth and all of your personal property completely uninsured.