7 Elements that Affect Condo Homeowners Insurance Cost

For many people, buying a condo is an affordable way to achieve their dream of homeownership. Condo owners have many of the same responsibilities and expenses of people who own single-family homes and that includes insurance.

At Addition Financial, we work with prospective homeowners every day, many of whom buy condos or townhomes. One of the questions we hear a lot as people work to create a home buying budget is this:

“How much do condo insurance policies cost?”

That’s an important question because you will be required to buy home insurance for a condo and some of those costs will be included in your closing costs. With that in mind, here are seven elements that can affect condominium insurance cost.

What Insurance Do You Need for a Condo?

Let’s start with one of the things we get asked a lot, namely, what insurance do I need if I buy a condo? The answer is that you need homeowners insurance, but a more nuanced response is required.

The condominium association will carry a master homeowners insurance policy that covers the property and typically covers damage to the exterior of individual units. You’ll need to read the bylaws of the condo association but the most common division of responsibility is that the association is responsible for “studs out” repairs and unit owners are responsible for “studs in” repairs.

What that means is that as the homeowner of the condo unit, you are responsible for anything that happens to the interior of your unit, including damage caused by a flood, fire or weather, as well as routine wear and tear. 

The condo insurance policy you need is called an HO-6 policy. The HO-6 policy you buy should include coverage for the following things:

  • Dwelling coverage
  • Personal property coverage
  • Personal liability coverage
  • Loss assessment
  • Additional living expenses (loss of use)

We’ll talk about the elements that can impact the cost of a condo insurance policy next.

7 Elements That Affect the Cost of Condo Insurance Coverage

There are multiple factors that can impact the cost of condo insurance. Some are within your control and some are not. Here are seven factors that you should know about before you shop for an HO-6 policy.

#1: Coverage Provided by the Condo Homeowners Association

We already mentioned that the condo association is required to purchase homeowners insurance for the condominium building or community as a whole. The coverage purchased by the association will likely cover common areas, such as parking lots, pools, clubhouses and other shared spaces. It will also likely cover exterior damage to condo units.

You will need to read the association bylaws and confirm what is included in their policy before you get coverage of your own.

#2: The Condo’s Age and Condition

The next thing you’ll need to consider is the age of the condo you’re buying and its condition. A newly-built condo that has new fixtures and appliances will likely be less costly to insure than one that is older and more likely to require repairs.

For example, an older condo with plumbing that hasn’t been replaced in a while might be more likely to experience water damage that would fall under the HO-6 policy. The same is true of condos with older wiring because insurance companies see that as a risk.

#3: The Location of the Condo

Location always plays a role in homeowners insurance. It may not surprise you to learn that homeowners in Louisiana pay the highest homeowners insurance rates in the country. The reason is the area’s vulnerability to natural disasters such as hurricanes and floods, both of which increase the risk of homeowners filing claims.

It’s also worth noting that people who live in urban areas usually have higher premiums than those in rural areas. Cost of living plays a role as does the likelihood of you experiencing a break-in that would be covered by your policy.

#4: Replacement Cost / Cost to Rebuild

The amount of insurance you buy should be enough to replace your home in the event it is destroyed. Condo replacement isn’t necessarily about rebuilding on the spot but you will need enough coverage to enable you to move and replace your belongings.

If you buy a luxury condo in a high-cost area, it will cost more to insure than a modest condo in a middle-class neighborhood. The risk to the insurance company is directly related to the value of the condo.

#5: Additional Coverage Options & Types

While condo insurance covers a lot of things, it doesn’t cover everything. Certain types of damage, such as water damage from a pipe bursting, are covered. Water damage related to a flood is not typically included. If you live in an area where floods occur often, then it is worthwhile to purchase flood insurance for an additional cost.

You may also have valuables that are not covered by your policy. Most policies have an option to add a rider for your valuables, including things like jewelry and electronics. You will need to list these items on a separate schedule and the cost of coverage will be decided based on the replacement value of the items you list.

#6: Deductible

With any insurance policy, the deductible plays a role in determining the cost of coverage. If you opt for a policy with a low deductible, your premium will be high because the insurance company is taking on more risk. The reverse is true with a high deductible, which results in lower premiums due to the decreased risk to the insurance company.

When choosing a deductible, your best bet is to ask for quotes at more than one level and compare the costs from carrier to carrier. The deductible you choose should be an amount that you can afford to pay out of pocket if you file a claim.

#7: Your Credit Score

In some states, including Florida, insurers are permitted to use an insurance score to set insurance premiums. The insurance score is like a credit score. There are rules in place to ensure that no discriminatory practices are used. For example, an insurance company must disclose that they intend to use a credit score or insurance score in underwriting. They may not decide to use a score based on the “race, color, religion, marital status, age, gender, income, national origin, or place of residence of the applicant or insured.”

If your credit score leads to an adverse decision the insurer is required to disclose that to you. If you are planning to buy a condo, then you may already be doing some repair work on your credit if necessary.

New Homeowner Monthly Expense Worksheet

Tips to Help Reduce the Cost of Condo Homeowners Insurance

Now that you understand the factors that can impact the cost of condo homeowners insurance, let’s review some tips that can help you to reduce your premiums and save money.

Get Quotes from at Least Three Carriers

The first tip is to shop around. Rates and premiums can vary from carrier to carrier. For that reason, we recommend getting quotes from a minimum of three carriers and comparing them. Make sure that you’re doing an apples-to-apples comparison whenever possible and read the fine print to understand what is covered.

Consider a High Deductible Policy

The next thing you should do is to buy a policy with the highest deductible you can afford. You should review your budget and consider how the premiums at each deductible level would work with your income. Remember that you should choose a high deductible only if you are sure you can pay it out of pocket if you need to file a claim with your insurance carrier.

Bundle Your Policies with One Carrier

Another trick – and something we’ve heard from multiple insurance experts in the past – is that it’s possible to save money by bundling your insurance coverage with a single carrier. It’s not uncommon for people to have an auto insurance policy with one carrier, life insurance with a second and homeowners insurance with a third. Reach out to each of your existing carriers and ask what they can do for you if you transfer all policies to them. You might be surprised at how much you can save.

Repair Your Credit

If you’re planning to buy a condo but haven’t done so yet, another thing that can help is to repair your credit to improve your score. You may already be doing that as a way of preparing for mortgage underwriting but it can also help you with your condo insurance premium. Remember, Florida insurers are permitted to use an insurance score in underwriting, so having a good score can help you to save money on your homeowners insurance premium.

Buying a condo is something that a lot of first-time homebuyers do to achieve their dream of homeownership at an affordable price. The information we have included here can help you prepare for the cost of condo insurance and save money when the time comes to buy it.

Are you in the market to buy a condo? Addition Financial can help! Click here to read about our competitive mortgages, including our low down payment program for first-time home buyers!

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