Moving into a condo or apartment can be a confusing time for homeowners, especially when it comes to insurance. The policies are different, and some are specified for condos and some for co-ops so you need to know your situation thoroughly before commencing the insurance searching process.
A common policy in condo insurance is dwelling coverage and many mortgage lenders will require you to have some form of it. But what exactly is dwelling coverage and how much of it do you need to properly cover your condo in the event of a disaster?
Everyone’s situation is different and thus the recommended amount of dwelling coverage will change based on you. By knowing your situation – master policy, condo upgrades, at-risk areas – you will be better suited to find the dwelling coverage best for you!
What is dwelling coverage and what does it do?
The first step is to understand the basics of what dwelling coverage is. Dwelling coverage is insurance that protects everything you own in your apartment: your clothes, your furniture, your pets, and everything that is yours. Dwelling coverage can vary based on your building’s master policy which we will discuss later, but for now, we’ll assume you’re responsible for everything within your condo’s four walls.
In the event that a disaster strikes and causes damage to anything within your condo, counters, cabinets, ceiling, etc. you will be held responsible for repairs. This is where your dwelling coverage comes in, preventing you from having to pay out of pocket and keeping you and your belongings protected.
Keep in mind the disaster must be a covered peril – typically fires, HVAC issues, and explosions are covered. Earthquakes and floods are usually not covered disasters. Check your insurance policy to find out what is covered and what is not.
How much does dwelling coverage cost?
This will vary case by case but in most instances, your mortgage lender will require you to take out some form of dwelling coverage to protect themselves financially. If you’re unable to pay for the repairs, the mortgage lender loses money on you, so they require dwelling coverage to protect themselves as well as you. But how much does it cost?
Some mortgage lenders will require you to purchase 20% of your condo’s appraised value. This means that if your condo costs $500,000 you would need to cover $100,000 of that under your dwelling coverage. Other companies do the insurance requirements based on square foot of the living space making the insurance $100 per square foot. If your condo is 1,000 square feet, then your dwelling coverage must cover $100,000. A policy of this coverage ranges on average from $400-$600 per year.
If you have purchased a policy that covers $100,000 but the damages are around $130,000, your insurance company will cover the $100,000 in your policy leaving you to pay the remaining $30,000. Be aware that as you make upgrades to your condo, you appraised value will change and you should alter your insurance to cover these changes.
Something else to keep in mind is that your coverage can be affected by what master policy your building has. The above example is assuming your building has a Bare-Walls In type policy meaning you’re responsible for anything within the walls of your condo even if it was part of the original structure.
Check your building’s master insurance policy
The building’s master policy is the insurance used to pay for any damages caused to the building itself and not your condo. Stairs, elevators, common areas, etc. Two types of master insurance policies exist and knowing which form your building employs will change the type of dwelling coverage you need to look for.
This is the more inclusive policy and includes everything in the original structure of the building. If your building has an all-in master policy it means that your cabinets, counters, light fixtures, walls, etc. are covered and insurance will pay for any repairs. All you need to worry about for dwelling coverage is your personal belongings and sometimes any upgrades you make to your condo.
Bare Walls In
This is the less inclusive policy but probably the more common form of master insurance. If your building has the bare walls in policy, you are left uncovered for anything from your condo’s walls inward. This leaves you having to cover any cabinets, counters, belongings, anything inside your apartment’s walls.
Check your building’s policy to know which form of master insurance you are covered with. Knowing which master policy you have will change the amount of dwelling insurance you need to be properly covered. Speak with your insurance agency to know how much dwelling coverage you will need to protect yourself and your home in the event of a disaster.