I wrote a condo insurance policy last week for a new client. He’d started out with an offer for a single family home in the Dallas area which fell apart after the home didn’t appraise for the amount he offered. As he thought through what he desired in his next home, he decided to look at condos in the area. It turns out, he found the perfect home, but since it was the first condo he’s ever purchased, he had a lot of questions about condo insurance.
I began by contrasting the different type of home policies and what they cover. Renters insurance only covers the renter’s personal property or contents including furniture, clothing, electronics, kitchenware, etc. It doesn’t provide coverage for the apartment of home that’s being rented. Home insurance, on the other hand covers the entire structure, as well as the homeowner’s personal property or contents. Condo insurance straddles the space between a renter’s policy and home insurance in that they cover personal property and everything that can be seen when standing inside the home.
The part of the structure a condo policy covers is from the sheetrock in. This means it covers the walls, ceiling, and floor coverings (carpet, tile, hardwood, etc.), light fixtures, electric outlets and panel. Plumbing fixtures (toilets, sinks, shower, tub), and cabinetry are also covered, as well as the owner’s contents or personal property. How much condo insurance is needed is largely dependent on what it cost to replace the entire home, from the sheetrock in, in addition to personal property. Demolition and debris removal should also be factored into the amount of coverage in the event of a significant or total loss due to a major leak or fire.
To help in determining how to calculate replacement cost it’s helpful to look at two things; the square footage of your home, and the grade or level of your home’s finish out. Here are some rough guidelines to help with that.
Economy or Builders Grade: This grade consist of the basic or entry level of cabinetry, paint, and plumbing fixtures at Home Depot or Lowes. Countertops are laminate, Formica, or basic synthetic, cabinetry is made of pressed board with a wood or plastic veneer, carpet is an inexpensive grade, etc. Replacement cost runs between $40 and $50 a square foot.
Semi-Custom: This grade is a nicer level of cabinetry, paint, and plumbing fixtures at Home Depot, Lowes, or a building supply store. Countertops are a nicer grade of synthetic, ceramic tile, concrete, etc. with plywood cabinetry, possibly with a wood veneer. Plumbing and light fixtures are a nicer grade with metal finishes. The carpet is a better grade, and instead of vinyl flooring, there is ceramic tile or laminate present. Use a figure of $50 to $75 a square foot to determine the home’s replacement cost.
Custom: Cabinetry is made of solid wood and may have been built on site by a cabinet maker. Countertops include marble, granite, or other stone types, and plumbing fixtures are of a higher grade too. Lighting fixtures may be crystal, or from specialty stores and suppliers. Floor coverings include a nicer grade of synthetic or natural fiber carpet, tile is imported ceramic, terrazzo, or stone, and hardwoods are real wood planking or parquet. A good range to determine replacement cost is $75 to $125 a square foot.
Luxury: Cabinetry is made of high end wood or imported wood, countertops are of the finest natural materials, and the kitchen would make Chef Dean Fearing proud! Floor coverings are of the best grades of carpet, wood, stone or tile, as are the lighting and plumbing fixtures. Replacement cost can run $130 a square foot on up.
Insurance companies either combine the condo’s replacement cost and contents into one combined amount of coverage, or they may show this in two separate amounts. Whether one combined coverage amount is used or two separate ones, there should be enough coverage to replace both the condo as well as the personal property in a worst case scenario.
From there, I began to review the other items that should be included in any condo policy which I’ll cover those in next week’s post. If you have a question, comment, or experience you’d like to share are a condo home owner, please share them with me on our Google +, Facebook or LinkedIn pages. I’d love to hear from you!