Each year you should review your condo insurance coverage to make sure that you are properly covered AND getting the best value for your investment.  I’m not an insurance agent, so this summary is based upon my experience in the vacation rental market.  Insurance policies vary in coverage so be certain to ask your agent and/or read your specific policy to make sure you understand what is and is not included in your coverage.

What is an HO-6 Insurance Policy?

Condo Insurance is different from your typical homeowner’s insurance.  With a condo, you only need to cover the contents of your own property from the drywall in.  The rest of the building, including common areas, exterior, roof, etc. are covered by your Condo Association Policy.  A condo policy can also provide liability and loss of use coverage for your rentals, and add your Property Management Company as an additional insured.

How Do You Know How Much Coverage You Need?

If you carry a mortgage on your property, it’s likely that your loan will stipulate a minimum amount of coverage on dwelling and liability.  You may certainly increase that coverage if you have a good business reason to do so, and the other areas are up to you (although some policies may also have minimums on those or automatic calculations).  Here are the various sections you’ll want to review:

Dwelling:

This is coverage to replace everything structural inside your condo from the drywall in. This will cover walls, flooring, tile work, plumbing, electrical, appliances, and fixtures that are permanently attached (HVAC, water heater for example).  If your unit were completely damaged by fire, water, or some other event, consider what it would take to restore the condition to an EMPTY, move-in ready condo.

Personal Property

Coverage for personal property is where you protect the CONTENTS of your condo.  This includes anything not permanently attached, including furniture, art, or any personal items.  There will typically be limits on certain categories such as money, jewelry or electronics among others.  This coverage level is often calculated automatically based on dwelling coverage, but if you believe the contents would cost more than the minimum to replace, you can choose to increase that coverage (or bear the risk of replacing at your own cost).  Bear in mind that most claims are not for a total loss situation, so you may want to consider the cost to increase this coverage over the risk.

Loss of Use

This coverage is especially important if your condo is a rental property.  In the case of damages that would require you to cancel a reservation, or make your condo “not fit to live in” for a period of time, this will cover the lost rental income during that period of time.  Check this coverage level to ensure that it is sufficient to cover lost income during your peak season for at least several weeks.

Personal Liability and Medical Payments

Your liability coverage protects you from any legal costs or settlements that result from personal injury on your property or property damage lawsuits.  Lawsuits do not always require negligence, so everyone needs this coverage.  They could include items such as a slip in the tub, a trip on a balcony step, or an event happening inside your unit (perhaps an unexpected water leak) that caused damage to a person or their property.  Most condo policies will carry a minimum coverage, but you can always purchase more.  Note, however, that this coverage does NOT cover medical payments to YOU – only to others that are hurt or incur damages on your property.

Hurricane (Wind)

In the Gulf Coast market, this coverage is essential.  Hurricanes can cause damage on any floor, and this is the main reason coverage rates have been spiking over the last few years.  Warmer gulf waters are making the storms that come ashore stronger and more destructive.  You’ll want to ensure that your hurricane deductibles are reasonable for your location.  This premium insures that damages due to WIND are covered with your policy.

Flood (Storm Surge)

Sometimes the worst damage from a hurricane is not the wind itself, but the storm surge that follows, bringing in high flood waters and filling homes or ground/low floor properties.  Just because you’re not located in a “flood zone” doesn’t mean that you’re not going to see storm surge following a major hurricane.  If you’re on a low floor of a condominium, you should make sure that you have this coverage.

Don’t Forget your Property Management Company!

Finally, don’t forget to include your Property Management company as an additional named insured on your policy.  This is typically required in your property management contract and rarely has any additional cost.  Be sure to check your current HO-6 policy to make sure that your current management company is included.

 

Remember that you can shop around for different carriers to compare prices for the coverage you want, but don’t forget that you often “get what you pay for”.   Be careful not to cut your coverage levels to the point that when you have to file a claim, the coverage isn’t there at the level you need.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

https://www.ramseysolutions.com/insurance/condo-insurance-guide