Condo Insurance: How Much Should You Buy?

While there are some similarities to home living and condo living, there are enough key differences that you should not go into the purchase of a condo unit using the same insurance rules as you would with your home. This important truth came to light in a recent Reddit post in which the commenter asked about how much condo insurance he should get.

“The house I am purchasing is a row-house that technically is a condo,” the poster wrote. “From my understanding, the condo association is responsible for the building itself and its structural integrity, but I am responsible for everything inside. From my understanding, condo insurance is to cover all the ‘betterments and improvements’ inside the home, which includes the walls, floors, fixtures, etc. … But I’m kind of lost as far as how much coverage that entails. Is it for the full purchase price of the home? Is it some fraction? Is it the home appraisal value? Should I consider property value increases?”

All good questions on a matter that can be confusing to many! So what should he be looking for in terms of condo insurance coverage? Three words: estimated replacement cost.


Where Do You Find The Estimated Replacement Cost?

As with home buying, getting an appraisal is important to the future condo owner. It’s on this document that he will find those small but very important words. Incidentally, this is how one should be thinking of home insurance as well — not by how much the market value of the structure is, but by how much it would cost to replace everything as-is tomorrow if there was a total loss on the condo unit today.

One agent explained: “The estimated replacement cost is talking about what it would cost the insurance company to pay for materials and labor to literally repair or rebuild your unit, which is what you should be insuring it for. … The idea here is that if something were to happen that ‘totalled’ your condo, you’d want to get it fixed so you could live in it again, rather than turning around and building a new condo unit and having to sell the old one, like you would with a car.”

With that said, here are some additional things to remember as you determine the final amount on your condo insurance policy:

  • Your personal possessions. It’s exceedingly rare that your condo or home will get knocked down or destroyed and not affect the things inside. Your flat-screen television, your sound system, your kitchen appliances, your TV stand, CDs, DVDs, furniture, etc. How much do you have invested in the life that goes on inside your condo, and how much will it take to replace all of those things in the event of a catastrophe?
  • Price increases in the housing market. As time goes on, the cost of building materials and labor will increase. Therefore, the number that you insure your condo for today shouldn’t be the same number that it’s insured for 5 years from now. If it is and something happens to your condo in the future, then you will only receive enough money to rebuild at the previous years’ pricing. This will likely result in a smaller living space.


In Summary

Whether buying a home or a condo, it’s important to take your insurance coverage seriously and revisit it frequently to make sure that you have enough on your policy limits to replace the lifestyle you could potentially lose in the event of a natural or manmade disaster. If in doubt about the amount, make sure you reach out to a local agent in your area with any questions.

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