I have been working with a first-time condo buyer over the last week. As we reviewed the different condo insurance options available to her from all our carriers, I was reminded of the two different ways insurance companies approach insuring a condo. Let’s look at what condo insurance is designed to cover from a property standpoint and then address how different carriers approach it.
Condo insurance is designed to cover two different types of property, the finish out of the person’s condo and their personal property or contents. The finish out means the policy covers from the sheetrock in which is everything you see before you move anything into your new home. This includes the walls, electrical and plumbing fixtures, flooring, and cabinetry. The condo association policy covers the studs out including wall framing, roof, exterior walls and common areas.
There should be enough coverage in the policy to rebuild your home if it burned to the ground, exactly as it is at the time the policy is written. If you remodele your home and put in a nicer kitchen, master bath, or all new hardwoods, then the amount of coverage may need to be increased to properly cover your home’s finish out.
In addition, a condo insurance policy should also have coverage to replace all your personal property, or contents, including furniture, clothing, appliances, decorative items, kitchenware, electronics, etc. Both the contents and the finish out coverage should be written on a replacement cost basis so that if something did happen, you’d be paid the cost to replace the home and what you moved into it.
Some condo insurance policies combine the finish out and the personal property coverage into one amount and refer to the combined amount as personal property. In these cases, the total amount of personal property coverage should be enough to replace both your contents and the finish out of your home. Other companies keep these amounts separate and refer to the amount of finish out coverage as either dwelling coverage of Coverage A.
In either case, it’s important to understand the grade of finish out in the home, as well as, what it would take to replace a person’s contents. We only have to look back at last year’s fire at the Preston Place condominiums which destroyed 60 homes to understand that having too little or no coverage actually costs more than what you’d pay for condo insurance over a 20 year period. What do you think? Share your comments, questions, or experiences with me on my Facebook, Google +, or LinkedIn pages. I’d love to hear from you!