Frequently, condominium owners believe that once their mortgage is paid off they no longer need coverage for their unit. This confusion stems from a misunderstanding of what the condominium association’s master insurance policy covers. For the sake of argument, assume that the master condo association policy covers all units so if there is a fire your unit will be rebuilt. This is an all inclusive policy and only covers perils such as fires in the entire building. Individual unit owners are not covered for loss of personal property nor are they covered for personal liability. So, discontinuing coverage when your mortgage is paid still leaves you liable to replace your personal property on your own and assume financial risk should someone be injured while inside your unit.
What Condo Insurance Covers
Condominium insurance policies cover three things:
- Personal Liability
- Personal Property Replacement
- Replacement Dwelling
Personal liability insurance protects you financially if your actions cause harm to someone else. Imagine you have a party in your condo unit. A friend has brought a date to your party. During the party the date trips on a chair leg and tumbles down the stairs. Because of the injury the date incurs medical bills and also loses time from work. You receive a letter from an attorney demanding that you pay $100 thousand dollars to cover medical costs incurred and anticipated as well as lost wages. If your condo insurance includes a personal liability limit of $100 thousand you are fully protected. Without the policy you will have to hire an attorney to defend you or negotiate a settlement that you will pay from your own pocket.
Personal property coverage protects you in case of fire or theft. It pays you to replace items such as appliances, clothing, furniture and art and jewelry within certain limits. Be careful when purchasing this insurance, replacement cost is different than cash value. Replacement cost allows you to buy a new dryer if yours was destroyed in a fire, cash value is the depreciated value of your dryer and will not be enough to replace it – you always want replacement value to keep you well covered.
Condo Dwelling Insurance
If your condominium association does not provide unit coverage then you need dwelling insurance. Say you have a grease fire in your kitchen and the kitchen cabinets are destroyed. Fire is a covered peril and this insurance will pay to have new cabinets installed and even to repaint your kitchen.
All three perils can be combined into a single policy. The coverage is relatively inexpensive and the peace of mind tor being protected cannot be valued.