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How Much Dwelling Coverage Do I Need in My Condo Insurance?

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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.

Does your condo's master policy help cover your dwelling?

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.

Calculating how much dwelling coverage you need

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, none of them asked what the master policy covered. Instead, they estimated coverage based on your lender's requirement or the size of your apartment. For example, if you're trying to insure a 1,150 square foot condo that's valued at $700,000, 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 example above, 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 yourself.

For any repair work that you undertake, insurance will foot the bill up to your coverage limit. If the cost of work exceeds this limit, you must either pay the difference out of pocket or make compromises in terms of materials and scope.

Keeping your dwelling coverage amount up to date

We recommend revisiting and updating your policy's coverage limits at least once a year. Three factors can cause your insurance needs to change: cost of labor and materials, change in real estate values and the added value of any renovations you carry out.

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. On the other hand, homeowners who used the percentage property value method will need to check whether the latest change in real estate values have outpaced their existing dwelling coverage.

Finally, we recommend contacting your insurer or insurance agent any time you decide to upgrade areas like the bathroom or kitchen. This will enable them to adjust your policy limits to match the increased value of your unit.

What does dwelling coverage do?

The dwelling portion of your condo policy pays to replace your belongings and furniture after certain disasters. Most fires, plumbing/HVAC issues and explosions are covered. Earthquakes, floods and sinkholes are typically not covered by condo insurance.

Most policies define belongings and furniture to include everything within the walls of your unit, such as clothes, valuables, and electronics but also the kitchen island, sinks and installed appliances.

If your master condo association policy is all-in, then that policy will pay for fixtures like the cupboard, bathtub and kitchen equipment. Your personal 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.

Mark is a Senior Research Analyst for ValuePenguin focusing on the insurance industry, primarily auto insurance. He previously worked in financial risk management at State Street Corporation.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.