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How Much Dwelling Coverage Do I Need for Condo Insurance?

How Much Dwelling Coverage Do I Need for Condo Insurance?

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Condo insurance protects your home in a similar manner to regular home insurance, but you likely won't need as much coverage as for a typical home. That's because your building's structure is likely covered by your association's master insurance policy.

To decide how much dwelling coverage to get for your condo, start by looking into your condo association’s master insurance policy, which protects the outside of the building, the elevators or stairs, and other common space. There are two types of coverage — "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?

There are two types of master policies. You first need to determine which type your condo has and whether your condo association’s master policy covers some of the things inside your apartment. If it does, that reduces the amount of dwelling coverage you need to buy.

All In (All Inclusive): This type of master policy insures the interior and exterior surfaces of your unit, so you only need to worry about insuring the items you own (clothes, furniture, etc.) that are inside the condo. 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: With this type of master policy, everything inside of your apartment’s four walls would need condo insurance. You will need to purchase an individual policy to cover even the appliances or fixtures, like the fridge or sinks in your bathroom.

If your master policy is all in, you don’t need as much dwelling coverage. If it’s bare walls in, you'll need to make sure the dwelling coverage you purchase is enough to replace all of the improvements attached to the surfaces.

Calculating how much dwelling coverage you need

Once you’ve figured out the type, you need to estimate how much it would cost to replace your home in case of a major accident. One approach is to get an estimate from an architect, contractor or interior designer about the value of the dwelling. Even if they can't provide a full estimate, they might give you a per-square-foot benchmark for comparable units that would be helpful. Otherwise, there are two estimates you can use from your insurer or mortgage lender.

Your mortgage lender may require a specific amount of dwelling coverage, since it is lending you money and has a vested interest in protecting the property. In one case, the lender specified 20%, but this requirement can vary even among the top home loan providers. It's a good idea to clarify whether the requirement assumes an all in or 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 the lender's requirement or the size of the unit.

For example, to insure a 1,150 square foot condo that's valued at $700,000, the range for 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)

If your lender doesn’t have a required coverage amount, 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.

For a sample condo in the Garden State, we received estimates showing that raising the dwelling coverage from $115,000 to $140,000 increased the cost of insurance from $481 a year to $590 a year.

If you want the cheapest coverage, 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 would 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: the cost of labor and materials, changes 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. Homeowners who used the percentage property value method will need to check whether the latest changes 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 or 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, as well as the kitchen island, sinks and installed appliances.

If your master condo association policy is all-in, then that policy will pay for fixtures like cupboards, bathtubs 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.

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