Condo Insurance: is it necessary?

5 Replies

Hello,

I recently put in an offer for a condo that I plan to rent out to tenants (I will not live there), and would like to know if I need to purchase condo HO6 insurance since the HOA provides an "all-in" master policy?

  1. HO6 INSURANCE: if the HOA offers "all-in" insurance, then I would only need to insure my personal belongings. And since I will not be living in the condo, then I won't have any personal belongings to insure. So does this mean I do not have to purchase condo HO6 insurance? IOW, can the tenants just get renter's insurance to cover their personal belongings?
  2. INJURY: What about if a tenant or tenant's guest is injured inside the condo? Whose insurance covers that situation (i.e. the HOA's "all-in" insurance, the renter's insurance , or would I need to get insured for that)?
  3. FLOOD INSURANCE: I spoke with the HOA office, and they said that the building was recently included in a flood zone. The HOA currently does not have flood insurance since they are still figuring out how to deal with this recently added cost - so it seems like I might have to buy flood insurance for my individual condo (i.e. if my mortgage lender requires it). That said, my condo is on the 2nd floor of the building - do I still need to get flood insurance for my individual unit (what's the point, if the rest of the building is not insured for this)?

What do you think?

Usually, yes, you do need condo insurance for a condo in an HOA. But Bigger Pockets is not going to give you a definitive answer on this. If the HOA tells you that you also need a condo policy, which they probably have told you already, or at least that's what my well-jaded Spidey-sense tells me, then you need a condo policy.

I currently live in a condo (that I did not choose for myself) in essentially the same situation and I too need a condo policy, and I very much resent paying it every year and cherish the thought of the day that I will move out and sell this place.

The wise thing to do if you ever intend to borrow money on the unit is to make sure that the master policy of the HOA and your individual policy are issued by the same bloodsucker/insurance agent. Makes it easier (but not easy!) to handle proof-of-insurance issues with the bank.

Need or Should? To verify true needs, consult with your lender and the condo association rules and regs.

I would say dont bother asking if you need to and just purchase it. It should be very cheap and you would factor it into the rent. If its making or breaking your rental numbers, its probably not a good investment to begin with. Without seeing the actual policy, the condo policy most likely only covers the structure and the common elements. Your policy would cover everything inside the walls; appliances, cabinets, flooring, etc, not to mention provide some sort of liability protection. You could require renters insurance which would give the tenant liability protection from most things they would try to go after you for. As for flood insurance, this should be in the condo insurance policy which you would pay for indirectly through the condo dues. If you are on the 2nd floor and depending on what the flood map says, I might opt out of this.

Without reading the HOA documents it's impossible to say. As an investor and Independent Insurance Agent I'd recommend getting the HO6 condo insurance. You will have both liability protection as well as coverage for the things you own in the condo (appliances, window coverings, etc. ... and I'd probably throw in some "building" coverage as well -- condo insurance usually covers "drywall in" which means flooring, cabinets, drywall, etc. while the HOA typically covers the sticks and bricks. Even if the HOA covers the interior, it's good for you to have liability coverage. In my opinion the protection it provides is too cheap not to purchase. (If someone can sue Mickey D's for spilling their own hot coffee in their lap I'd want liability for myself!)
Typical Home and Condo policies do not cover flood damage. If the property is located in a flood zone you'll likely be required by the lender to purchase flood coverage separately. There are a few companies outside FEMA who provide this coverage. If you can't find a local agent to help, I'm licensed in 45 states and have current clients in Texas and would be happy to help or help point you in the right direction.

Any agent should be able to provide you with Evidence of Insurance upon request - it shouldn't matter if it's with the same carrier as the HOA. Some carriers that cover the HOA won't write personal policies.

Successful investing,

Brian

The HOA Master Policy will typically rebuild the structure and nothing else in your unit. Read the CCRs to see what the HOA is required to cover. I've seen some CCRs that state to the studs only and you are responsible for the drywall. I've seen others that include drywall and some oddities like kitchen cabinets.

What a decent HO6 policy will likely cover:

  • When the place gets destroyed, it will pay for a complete repair of the unit including flooring, cabinets, closets, bathrooms, kitchen including appliances and garbage disposal, painting, lighting, window treatments, laundry hook-ups, wired smoke detectors, door bell, etc, and all of it with the necessary permits!
  • The lost rent every month until you can have it rented again.
  • Liability to protect you when you get sued for things that your tenant did like letting the bath overflow and damage other units. You think they are just going to sue the tenant? Nope, they are going to sue you claiming the overflow valve was not of proper size or not working correctly or plugged. The insurance carrier will pay an attorney to fight this for you and pay for your liability, if any.

You get all of the above for around $15-$25 a month.

The flood insurance will typically have to be purchased by the HOA. From what I've seen, a lot of CCRs state that if a single mortgage holder requires flood insurance, the HOA is usually responsible to purchase it for the building.

Once you're in escrow, you'll get a copy of the CC&Rs - read the clauses related to insurance and what you as the unit owner are responsible for.  The vast majority, as others have said, insure the structure, or common walls, or some just the exterior wall's studs and you're responsible for the interior.  SOME (and as an insurance broker, I've seen very few of these), cover EVERYTHING, including the interior and betterments - however, there is a catch.  They insure / cover that to how it was ORIGINALLY built - meaning if it was built with carpet flooring and linoleum countertops... you're not going to get hardwood floors and quartz countertop back.   Still though, the vast majority will say that you're responsible for the interior.  The CC&Rs will dictate the rules here.

Condo coverage though, is typically really cheap - though in CA, it's become VERY limited as to who will write a tenant occupied condo as new business.

If your HOA does happen to cover everything as far as the property is concerned, you would still want to get a liability policy to cover your exposure as the owner. You could sometimes have your primary homeowner's policy extend liability, but typically getting a standalone liability policy is the ticket.