insurance for condo rental property?

[Jiseok Kim]

Hello Community. Newbie investor is here.

I am confused what type of insurance policy should I buy as a landlord for a condo that I am planning to rent it out.

The condo is under HOA and there is a master insurance policy by the HOA.

I got an insurance quote from my insurance agent as shown below with a yearly premium of < $200.

I am just puzzled why it's cheap as I thought it would cost me about at least $1k for a year..

Can anyone give me some idea how the condo insurance works ?

How would this quoted insurance work with the master insurance policy by HOA? Do I even need this one on top of the master insurance policy?

[Bill Brandt]

You need the liability insurance no matter what, that’s how you lose all your money. 

As a landlord policy, which is what you need, it only covers the property, the appliances, the furnishings and such, that’s why it’s cheaper than homeowners, no personal property is insured. That’s why you hear about renters losing everything in a fire, they didn’t have renters insurance to cover it. 

Also, it only insures 2 things. One, from the exterior in, or the studs in, or the drywall in, as your Hoa insurance policy covers the exterior, the roof, the foundations and so on. Another reason this insurance is cheap. A big part of your Hoa fee is paying property taxes and insurance. (A reason your property taxes are lower in this situation, you don’t own land.)

The other thing it covers is the Hoa master policy deductible. This is usually between $10k and $50k, the higher it is the lower their cost. BUT, the more likely you won’t have $10-$50k laying around to pay your deductible. It looked like they were providing for a $20k deductible in your case. 

If you want to save $100/yr and have $20k laying around in cash to pay the deductible, you can cancel that part of the insurance. And if you don’t make a claim for 200 years, you’ll break even. Unless you have a loan on the prowprty, they’re probably going to require it. Same thing with the liability. If you h]own nothing and are worth nothing and owe more than the property is worth, you can save another $100/yr getting rid of the liability coverage. 

I pay about $320/yr for a $750k townhome in MN with a $25k master policy deductible, that’s about the going rate. 

[Jiseok Kim]

Quote from @Bill Brandt:

You need the liability insurance no matter what, that’s how you lose all your money. 

As a landlord policy, which is what you need, it only covers the property, the appliances, the furnishings and such, that’s why it’s cheaper than homeowners, no personal property is insured. That’s why you hear about renters losing everything in a fire, they didn’t have renters insurance to cover it. 

Also, it only insures 2 things. One, from the exterior in, or the studs in, or the drywall in, as your Hoa insurance policy covers the exterior, the roof, the foundations and so on. Another reason this insurance is cheap. A big part of your Hoa fee is paying property taxes and insurance. (A reason your property taxes are lower in this situation, you don’t own land.)

The other thing it covers is the Hoa master policy deductible. This is usually between $10k and $50k, the higher it is the lower their cost. BUT, the more likely you won’t have $10-$50k laying around to pay your deductible. It looked like they were providing for a $20k deductible in your case. 

If you want to save $100/yr and have $20k laying around in cash to pay the deductible, you can cancel that part of the insurance. And if you don’t make a claim for 200 years, you’ll break even. Unless you have a loan on the prowprty, they’re probably going to require it. Same thing with the liability. If you h]own nothing and are worth nothing and owe more than the property is worth, you can save another $100/yr getting rid of the liability coverage. 

I pay about $320/yr for a $750k townhome in MN with a $25k master policy deductible, that’s about the going rate. 

Thank you very much for your comments!

Now I have better idea what I would need to protect myself.

Then how much of the personal liability coverage typically recommended?

In my quote, it seems they would cover up to $300K. 

Is this considered to be good enough or is it better to increase up to like 1M? 

I have no sense of it..

By the way, I also have questions about the general scope of the personal liability. 

As far as I understand, the tenant can claim against the landlord if he/she got injured within the property for some reasons. 

Then under what cause of the injury or circumstances, would I be responsible for the liability?

Would 'common sense' come into play in case of the personal liability?

If the cause of the injury lies to me, then my landlord insurance pays the whatever bills up to the Personal Liability limit, correct?

Please correct me if I misunderstand about the Personal Liability. 

[Bill Brandt]

You are correct on liability. You can/will be accused of being responsible for almost any injury at the property, even if you have a property manager. 

Now your net worth isn’t the $400k property, if you owe $300k, that’s only worth $100k. What you need to do is add up all the things you own that are worth more than say $10k each and then subtract everything you owe. That’s your net worth. You want to have enough liability insurance to cover that. Usually you would get an umbrella policy above your liability policy if you are worth more than 6-700k. 

The big reason is you are probably 10x more likely to get sued for something you do, rather than what your property does to someone. You have a pool and a kid drowns in it. Or a kid runs across the street between two cars and you hit them. You forget to remove the ice from the driveway and the old man falls breaking his hip. You hit a pedestrian in a parking lot or your dog disfigures someone. In all these cases you lose your rental houses for sure and maybe your primary home, depending on your state’s homestead laws. 

The umbrella is cheap, and it covers you, in your home, in your car, walking down the street.  It’s like your Hoa master policy though, it has a BIG deductible, usually $300k or more. 

[Cameron Moore]

A Landlord condo policy is typically cheaper because it only covers from the walls in and not exterior damage. Always max liability coverage and ensure that you have the Loss of rents coverages as well. 

[Henry Lazerow]

Yeah condo insurance for investments is extremely cheap. It's one of he secrets many investors who do multi/sf don't realize. 

[Bo Bond]

Jiseok,

Ask for more liability than $300k.  That's not much at all.  It should also be pretty cheap overall to get $1M in coverage.  $1M isn't what it use to be; especially now with inflation and people who may be desperate for money and more apt to sue if something goes wrong.

As for your property, you "must" know to what extent your condo association provides coverage.  This can only be found in the governing documents of the association, and ONLY under the insurance section of those documents.  There are 3 different levels of condo association insurance, so that's why this is so important.  Don't just take someone's word for it.  After working in this niche area for over a decade I've run into community managers, board members, and yes, even insurance agents who didn't even know what their governing docs required, nor what the community's policy actually provided coverage for.  Below are the three different levels of condo insurance.  The first requires the highest level of coverage under your unit owner's policy, and the last requiring the least amount of coverage by your unit owner's policy.

#1. Bare Walls Coverage - You are responsible for the entire finish-out of your unit.  Thus the property limit is pretty significant on your condo policy.  You would be required to insure/replace the entire interior of your unit (everything inside the sheetrock of your unit).  This means wall coverings (texture, paint, wall paper, etc.), flooring (hardwood, carpet, tile, etc.), all appliances, fixtures (chandeliers, sconces, tub, shower, toilets, etc.).  

#2. Original Design / First Conveyance Coverage -  In this setting, you're ONLY responsible for upgrades to your unit based off it's original finish-out by the developer.  Your limit is way less with this type of condo association coverage.  If you don't know what upgrades have been made to your unit, you can ask someone who's lived in the community a really long time (if it's an older community), ask the board, review your documents for some possible details, etc.  In this coverage type, the condo community pays to restore the inside and outside of your building & unit back to it's original design by the developer.  This has become the most common type of condo insurance across the country when it comes to condo association insurance.

#3. All Inclusive Coverage - This coverage is very similar to apartment style insurance where some other owner/entity is responsible for everything inside your unit EXCEPT for unit owner contents or renters contents.  In short, if there's a loss and the condo community has this type of coverage in place, the community association's policy will provide coverage for the exterior and interior of your unit back to it's preexisting condition prior to the loss (INCLUDING) any and all unit owner upgrades to the unit.  That's whether you made the upgrades as the owner, or 3 unit owners prior to you made the upgrades.  In this type of coverage the only items you need to protect are your contents within the unit.  Again, if you have no contents, then you'd really be looking at a bare bones condo policy with $1M+ in liability coverage.  

Understand that in each of these coverage types above, the unit owner and the renter need their own coverage for ANY contents they own and bring into the unit (couches, tables, clothes, jewelry, etc.). If this is a STR, then you'll very likely be furnishing the unit and need a decent amount of protection in the event everything burs up in a fire. If this is a LTR, you'll likely have little-to-no contents of your own in the unit, and thus really just have a $1M+ liability policy. Your contents coverage is in addition to whatever level of property insurance you've selected above (#1, #2, or #3) per your condo's governing documents.

I hope you find this helpful.  Condo and townhome insurance can be really difficult to decipher sometimes, and many people are mislead by how it all works.  If you need more help or direction, please feel free to reach out directly anytime.

Good luck!

[Michael Smythe]

Typically, you need "walls in" policy as HOA only covers the structure.