If you’re hunting for your first home, a condo can be an attractive option. But a condo is a big investment – after saving for years for a down payment and committing the next 25 years of your mortgage paying life to your new home, you want to make sure it’s protected.
It’s critical to have condo insurance to protect your home. But if you’re a first-time home buyer, or you’re making the move to a condo from a different type of home, you might have questions about how condo insurance works. In this article, we’ll explore what condo insurance is, why you need it, what’s covered (and what isn’t), and how much you can expect to pay for condo insurance.
What is Condo Insurance?
Condo insurance is an important tool that protects you against major financial losses that you could incur related to your condo. If something happens that’s covered by your condo insurance policy, your insurance provider will pay for it.
Condo insurance differs from other forms of property insurance in a few ways. Unlike renter’s insurance which typically only covers your contents and liability (in case you cause an injury or damage to the property), condo insurance provides coverage for temporary accommodations in the event your unit becomes unliveable. And, unlike home insurance for detached properties, condo insurance excludes coverage for losses that are paid for through your condo fees.
Do I Need Condo Insurance?
If you are buying a condo, you will need insurance for three very important reasons:
- Condo insurance is a condition of your mortgage. No mortgage lender will release the funds to purchase a condo unless they have proof that you have adequate condo insurance coverage. Because your home is collateral for the loan, lenders worry that you’ll stop making payments and leave them empty handed if the condo is destroyed. If you have a lapse in coverage, your lender could demand immediate repayment in full and exercise power of sale on your home, selling your unit out from under you and leaving you empty-handed.
- Condo insurance is required by the condo corporation. It’s almost certain that the bylaws of your condo require all owners to carry condo insurance. This rule is in place to protect everybody; if an owner can’t pay to repair major damage caused by a fire or flood, the condo corporation, (which is jointly owned by everyone in the complex) is left on the hook. Their best recourse is to exercise their power of sale, leaving you with a mortgage to pay and no home to live in.
- Condo insurance pays for unexpected expenses that could otherwise leave you bankrupt. If your dishwasher overflows and floods the unit below yours, you’re responsible to pay for the repairs. If your dishwasher overflows and floods the elevator shaft and destroys one of the elevators, you’re responsible to pay for the repairs. If you have condo insurance, it will pay for the repairs. If you don’t, you’re personally responsible. A severely damaged elevator can easily cost $250,000. A small fire in a densely populated building can cause millions of dollars in damage. Without condo insurance, a small appliance malfunction could lead to financial ruin.
What Does (and Doesn’t) Condo Insurance Cover?
Condo insurance covers most of the major expenses you could incur if something went seriously wrong. Condo insurance policies typically include:
- Unit protection. If your unit is damaged or destroyed, your condo insurance will pay to make repairs that aren’t covered by the condo corporation’s coverage. This can include paying for upgrades (like those in your kitchen) and making up for shortfalls in your building’s coverage.
- Personal property. If your property (like furniture, clothing, appliances, electronics and jewelry) is lost due to theft, flood or fire, your condo insurance will pay to replace it. Some items like your grandfather’s heirloom Rolex will need to be specifically named on your policy to be covered.
- Loss of unit. If you’re forced out of your unit due to a fire or flood, your condo insurance will pay for you to live in comparable alternative housing while repairs are made. It may also pay for your maintenance fees while you’re living elsewhere, additional living expenses and your moving expenses to return to the unit when it’s ready.
- Personal liability. If you cause bodily injury or property damage, your insurance company will pay to defend you in court and pay for the damages. The amount depends on your policy, but since there’s a potential to cause significant damage in a condo building, it’s wise to carry coverage for at least a few million dollars.
Optionally, condo insurance may also include:
- Loss assessment. If the condo corporation experiences a major loss that exceeds its insurance coverage, it may force you to pay for a portion of it through a special assessment. This policy rider would cover your share so you wouldn’t have to pay out of pocket.
- Overland water. This covers damage caused by a heavy rainfall or rising water. This coverage may be desirable if your unit is at or below ground level or if you live in an area where flooding is a concern.
- Sewer backup. This covers damage caused by sewage flowing back into your home. Many newer condos have overflow valves that can prevent this type of damage from occurring.
However, condo insurance does not typically pay for:
- Small losses. If your oven catches fire and causes minor smoke damage to your kitchen cabinets, don’t expect condo insurance to cover it. Your deductible could be as high as $10,000 meaning it’s not worth it to make a claim unless the loss is substantial.
- Rebuilding costs. It’s common for home insurance policies covering single-family homes to include rebuilding costs in case the building is destroyed. In condominiums, this coverage is typically carried by the corporation.
- Building liability. If a common element causes injury or damage (for example: a leaking swimming pool or falling ice could do substantial harm), the condo corporation’s insurance will pay for it. However if their policy falls short, this is where having a loss assessment rider could come in handy.
- Wear & tear and repairs. As your unit ages, things will break down and need repairs. Many parts of your unit will fall under the responsibility of the condo corporation, but many more will be your responsibility alone. Aging appliances, worn out flooring, and failing plumbing fixtures are yours to repair and won’t be covered by insurance.
Worthy Peace of Mind
While this all sounds very serious, keep in mind that these kinds of things happen rarely. Insurance companies make money by estimating how likely it is that you’ll sustain a major loss and charging you more than you’re statistically expected to claim. Canadians pay between $20-35 per month on average. Not a bad price for peace of mind with perhaps your most valuable asset.
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