As you probably know, home prices have sky-rocketed everywhere but especially here in metro Atlanta. To get more bang for their buck, many buyers have started to look at buying condominiums instead of traditional single family homes. If you don’t need a ton of space, buying a condo instead of a single family home, could be a good fit for you.
Purchasing a condo is especially attractive because the cost of insurance and maintenance are typically much less than traditional single family homes. For example, HO6 insurance for a $400,000 condo unit might be half what you’d expect for a $400,000 single family home. As for maintenance, painting the exterior of a home right now might cost you over $10,000. When you buy a condo, though you’re still paying for maintenance indirectly through your HOA dues, you typically are getting economies of scale on price and, perhaps more importantly, are greatly reducing the chances of an unexpected (large) expense.
A “downside” of buying a condo though is the complexity of the insurance exposures compared to a single family home. It’s not rocket science, but I’ve found that the unlicensed public, and even licensed insurance agents, often misunderstand what the HOA master policy covers, and thus what coverage limits to select for their own personal condo insurance policy.
So….backing up a bit, what is condo insurance? An HO6 policy, typically referred to as a condo insurance policy, is similar to an HO3 (homeowners policy) in a lot of ways but is designed specifically to insure condominiums. A great condo insurance policy is designed to eliminate gaps in the HOA master policy but also avoid insuring against exposures already covered by the master policy (paying twice for same coverage).
Here are 5 quick questions to think about when designing your HO6 policy.
What does the HOA policy typically cover? The seller should provide you with a copy of the master policy and/or declaration page. The dec page has the name of the agent of record and should be willing to talk to you about the policy. In Georgia, the HOA master policy is most likely an “all-in” policy but might be a “bare walls in” policy. It’s super important that you find out which one it is before purchasing your personal condo (HO6) policy.
If the HOA policy is an all-in policy, do I even need a personal condo insurance policy? Yes, because contrary to what it sounds like, the all-in master policy doesn’t actually cover everything in your unit and even if it did, the HOA master policy has a SUPER high deductible. We’ve seen deductibles of $100,000 in the last few weeks and I’m guessing we’ll see more.
Okay so I know I need an HO6 policy but how do I choose the coverage limits? It depends but a rule of thumb I’ve been using is NEVER select a dwelling coverage limit lower than the master policy deductible. If you’ve made upgrades to the unit, add that expense to the minimum limit.
Rule of Thumb Minimum Dwelling Coverage = Master Policy Deductible + Cost of Unit Upgrades
My realtor recommended I add loss assessment coverage? Why do I need that?
Yes! Realtors can be a great source of information and I 100% agree with your realtor, definitely consider adding loss assessment coverage as an endorsement to the HO6 policy. If the HOA’s policy were to get exhausted, the association could assess the unit owners to cover the short fall in coverage. If, for example, each unit owner is assessed $5,000, that would be huge unexpected, and unnecessary, expense for the unit owner. With the loss assessment endorsement, your personal condo policy would most likely pay that expense on your behalf.
This sounds like a lot. Who is best to contact if I have more questions?
A local independent insurance agent like us or visit www.TrustedChoice.com to find one near you.