Let’s start first with looking into your condo association’s master insurance policy, which protects the outside of the building, the elevators or stairs, and other common space(s). There are two types: bare walls in and all in, and they impact how much dwelling coverage you need to buy.
How Much of the Dwelling Are You Responsible For?
We need to determine first if your condo association’s master policy covers some of the things inside your apartment, which reduces the amount of dwelling coverage you need to buy. There are two types of master policies.
All In (All Inclusive): This means the master policy insures the interior and exterior surfaces of your unit, and you only need to worry about insuring what you actually own (clothes, furniture, etc.). Any fixtures that are attached to the walls, such as kitchen cupboards, toilets or showers, would fall under the condo association’s master policy. However, improvements can be a gray area.
Bare Walls In: This means everything inside of your apartment’s four walls would need condo insurance. Appliances or fixtures like the fridge or sinks in your bathroom would have to be covered by your individual policy.
If your master policy is “all in”, you don’t need as much dwelling coverage. If it’s “bare walls” in, your dwelling coverage should account for the value of having to replace all of the improvements attached to the surfaces.
Estimating The Amount of Dwelling Coverage
Once you’ve figured out the type, we’ll need to estimate how much it would cost to replace or recreate your apartment in case a major accident happens. If you want to be exact, you could get an estimate from an architect, contractor or interior designer about the value of the dwelling. Even if they’re unable to provide the total estimate, getting a per square foot benchmark for comparable units could also be helpful. Otherwise, there are two estimates you can use from your insurer or mortgage lender.
Sometimes your mortgage lender will have a requirement for the amount of dwelling coverage, because they’re lending you money and have a vested interest in protecting the property. In this case, the lender specified that we needed 20%, but this can vary even among the top home loan providers. If that’s the case, we would recommend you clarify with them if this assumes an “all in” or a “bare walls in” master policy.
When we spoke with agents from Allstate and GEICO to get a condo quote in New Jersey, none of them asked what the master policy covered. Instead, what they’ll typically do is estimate your coverage based on your lender’s requirement or the size of your apartment. Let’s assume a 1,150 square foot condo is valued at $700,000, then the range for your dwelling coverage would be:
- 20% of your unit’s value, loan value, or appraisal value, or $140,000 ($700,000 x 0.2)
- $100 per square foot for regular and standard finishes, or $115,000 ($100 x 1,150)
When your lender doesn’t have a requirement, and you don’t have a good valuation from a property expert, we recommend looking at how the quote estimate works with your monthly budget, your appetite for risk, and how much you have saved up to shore up the remainder. In this case, we got estimates that raising the dwelling coverage from $115,000 to $140,000 increased the cost of insurance from $481 a year to $590 a year for our sample condo in the Garden State.
For example, if you only want to go for the cheapest coverage, then pick something on the lower end. In the Jersey condo example, that would be the $100 per square foot estimate of repairs. However, keep in mind that if a disaster happens, and you’re forced to rebuild all of the interior of the condo, you have to make up the shortfall or cut some corners. Let’s say the renovation winds up costing $150,000 - insurance would foot the bill up to the $115,000 limit, and you either pay your contractors the $35,000 difference, or make do with fewer fixtures, or less high-end finishes.
Keeping Your Dwelling Coverage Updated
We’d advise you to revisit and update three things in your policy. Labor and material costs can change over time, so when you’re renewing your policy or comparing quotes from the top insurers, update the per square footage estimate for your condo’s dwelling coverage. Or, if you used the percentage property value method, and real estate values have changed, see if it makes sense to update the resulting dwelling coverage.
If you renovate the bathroom into a zen-like spa, or upgrade the kitchen with higher-end marble countertops and custom cabinetry, we recommend discussing these changes with your insurer or agent. They’ll need to adjust your policy to reflect the higher cost of replacing these, while keeping in mind your master condo association coverage.
What Does Dwelling Coverage Do?
The dwelling portion of your condo policy pays to replace your belongings and furniture after a disaster. The disaster has to be a covered peril. As an example, most fires, pipe/HVAC overflows or freezing, and explosions are covered. Earthquakes, floods and sinkholes are not insured against in condo insurance. Most condo policies define belongings and furniture include things you own: your clothes, valuables, and electronics to the kitchen island, sinks and washer and dryer in your unit.
One exception: if your master condo association policy is all-in, then that policy will cut a check to pay for fixtures like the cupboard, bathtub and kitchen equipment. Your condo policy would then pay for the clothes in your closet and the pieces of movable furniture you brought in like your bed and sofa.