Condo Insurance vs. Homeowners Insurance: What You Actually Need

Buying a condo instead of a house changes what you insure, not whether you insure. A house needs one policy covering the whole structure. A condo needs two policies that have to fit together: the association's master policy covering the building, and your own unit owners policy covering everything the master policy does not. Most condo underinsurance comes from assuming the master policy reaches further than it does.

The two-policy structure

Because condo and co-op owners share their building structures, coverage is split. The association buys a master policy covering the common areas and the building exterior, funded through your association dues. You buy an individual policy, commonly the HO-6 form, covering your unit.

The HO-6 is described as the condominium unit owners form: it is written for owner-occupants of condominium units and insures your personal property along with the walls, floors, and ceilings of your unit. Compare that with the HO-3 form typical for a house, which insures the whole structure. The difference is not a downgrade — it is a division of labour — but only if you know where the boundary sits.

Where the line falls, and why it varies

This is the part that genuinely differs building to building, and the reason generic advice fails. The dividing line between the master policy and your policy is set by your association's governing documents, and there are broadly two arrangements:

• Bare walls. The master policy covers the building structure only, and everything inward from the unfinished walls is yours: flooring, cabinetry, fixtures, appliances, and interior finishes.
• All-in, sometimes called single entity. The master policy covers the original fixtures and finishes as built, and you insure your belongings plus any upgrades or improvements you made.
• Variations in between, which are common, where the master policy covers some categories and not others.

You cannot guess which one applies. Get the association's declaration and the master policy's summary, and read what it says about unit interiors. If you renovated a kitchen in an all-in building, those upgrades are typically yours to insure even though the original ones were not.

What your unit owners policy covers

An HO-6 generally provides several distinct pieces:

• Building property coverage for the interior elements you are responsible for under the governing documents, including improvements you made.
• Personal property coverage for your belongings, subject to the same category sub-limits a house policy applies to things like jewelry.
• Personal liability, if someone is injured in your unit or you damage someone else's property.
• Loss of use, covering additional living expenses if a covered loss makes your unit uninhabitable.
• Loss assessment coverage, which is specific to shared-building ownership and worth understanding on its own.

Loss assessment is the piece unique to condos. When a loss to common property exceeds the master policy's limits, or when the master policy's deductible has to be paid, the association can assess unit owners for their share. Loss assessment coverage responds to that bill. Master policy deductibles can be substantial, and a per-unit share of one is a real number, so the small default limit on this coverage is frequently worth increasing.

How condo owners end up underinsured

A few recurring patterns:

• Assuming the master policy covers the interior. In a bare-walls building it covers almost nothing inside your unit.
• Insuring only belongings and skipping building property coverage, leaving flooring, cabinetry, and fixtures uncovered.
• Not insuring renovations. Upgrades you paid for are typically your responsibility even where original finishes were not.
• Carrying the default loss assessment limit without checking the master policy's deductible.
• Never re-reading the governing documents, which associations do amend.
• Assuming water damage from a neighbour's unit is automatically someone else's problem. Who pays depends on the governing documents and on fault, and your own policy is often what responds first.

What to do when you buy

Before closing, ask the association or seller for the master policy summary and the governing documents, and identify whether it is bare walls or all-in. Take that to your insurer and ask them to size your building property coverage to what you are actually responsible for. Ask what the master policy's deductible is and set your loss assessment coverage with that number in mind. Then check the ordinary things any policy needs: whether your belongings are covered at replacement cost or actual cash value, what the category sub-limits are, and whether your liability limit suits your assets.

If you have a mortgage, your lender will require coverage and will want to see it before closing, so start this while you are under contract rather than in the final week. And remember that flood and earthquake are excluded from a condo policy exactly as they are from a house policy, and are handled separately.

The bottom line: a condo is insured by two policies, and the boundary between them is defined by your association's documents rather than by any general rule. Find out whether your building is bare walls or all-in, insure the interior you are responsible for including your own renovations, and size loss assessment coverage against the master policy's deductible. Because governing documents and master policies differ building to building, treat those documents and your insurer as the authorities for your unit.