Everything you need to know about condo insurance

condo insurance is important

A condo purchase is a major financial decision.  Over the years, your home will be your largest source of equity.  That said, the value of a condo is vulnerable to fires, burglaries and other types of damages.  Condo insurance is critical to protecting this investment.

We strongly recommend every condo be covered by an insurance policy.  As we’ll explore in this article, not only does it provide peace of mind, it also protects you from certain liabilities.

Do I need condo insurance?

Many first-time condo buyers are under the impression that the condo association’s insurance policy will cover damages to their units.  As we explained in our introduction to the world of condos, condo associations are responsible for the common areas up to the boundary to your unit.

The majority of building insurance policies taken by condo associations only covers the common areas, such as the lobby, elevators, and gym. They do not cover the personal belongings within a unit.  It also doesn’t cover the value of renovations you made, if an accident that originated from within your unit damages another one or, personal injuries of persons visiting your unit.

Home insurance vs condo insurance

Home insurance is a term that covers everything from single family dwellings, to condos, and even cottages.  It’s essentially an umbrella term that covers all types of dwellings.  At SimpleCondoAdvice, we like to use the specific term condo insurance because the coverage between a single family house and a condo is much different.  The main difference is that home insurance covers the entire structure whereas condo insurance only covers the inside of the unit, and, if the damage spread to other units, their property as well.

Is condo insurance mandatory?

An insurance policy for your specific condo unit is generally not mandatory. However, many banks and lenders will only approve your mortgage if you prove that you have (or will get) a home insurance policy.

Even if your lender doesn’t force you to get an insurance policy, not being covered can be a major financial risk.  You could be held liable to pay for major repairs if damages to the common areas or to other units originate from your unit.

While you may be a responsible home owner, accidents do happen and can be costly.  Here’s an example to prove this point:

One of my clients brought back a home appliance from China.  One day, the appliance caught on fire (surprise surprise).  Luckily, the water sprinklers prevented the fire from spreading to the rest of the unit and building.  Unfortunately, this caused water damage to adjacent units and the property under the client’s condo.  Because the damages originated from his unit, he had compensate for the damages.  However, he also had a solid insurance policy so he got away with only paying the deductible (more on that later).  If he wouldn’t have been covered, he would have had to pay for the repairs to 3 units!

Loss assessment coverage

This type of coverage is unique to condominiums.  Loss assessment is the responsibility you have towards other owners in the condo development.   Loss assessment coverage, pays your share (up to a limit) to cover losses on common property that may exceed the condominium corporation’s policy limits.

When you’re shopping around for quotes, make sure you get this coverage.  With Loss Assessment coverage, the insurance company will pay for any loss to the common property you were responsible for.

Loss Assessments are usually capped to a certain amount.  Usually, we recommend that the higher up in a building you are, the higher this coverage should be.  If one day you get a burst pipe, water damage will spread to the floors below you.  The higher you’re up, the more units could be affected.

What is usually covered by an owner’s condo insurance?

Coverage changes between provinces and territories, but generally, a unit owner’s condo insurance will cover the following:

  • Loss to personal property (clothing, furniture, belongings, etc), including what’s in your locker
  • In the even of an insured loss, additional living expenses (ie temporary accommodations), over and above the normal cost of living
  • Your liability in case of property damage or injury to others
  • Upgrades and renovations (up to a stated limit) made to your unit.  This includes any modifications made by previous owners

How are premiums calculated?

The process by which an insurance company determines how much your premiums will be is fairly straightforward.  Unlike home insurance, the insurer doesn’t have to cover damages to the structure (walls, roof, basement) as this is covered by the condo corporation’s policy.  This serves to reduce the price of your premiums compared to traditional home insurance.

As you’re shopping around for quotes, the insurer will go over a list of checks to determine the risk they have to insure.  Insurers are mostly interested in knowing the following:

  • Value of home and belongings (theft, water and fire risks)
  • Any special uses in the unit (rental, home office) (theft, water and fire risks)
  • Special uses in the building (bottom floor businesses) (theft, water and fire risks)
  • Location and neighborhood (theft risk)
  • Type of construction (wood or concrete) (fire risk)
  • Distance to closest fire hydrant (fire risk)
  • Distance to closest fire station (fire risk)
  • Are units separated by a fire a wall? (fire risk)
  • Type of electricity and wiring materials (fire risk)
  • Source of heating (fire risk)
  • Presence of sprinklers in the building (fire and water risks)
  • Type of pipes and piping materials (water risk)
  • Other variables that may increase their exposure to risk such as:
    • Age of the building
    • Presence of a security guard
    • Presence of a security system
    • Pool and its location in the building

When shopping around for quotes, they will ask you all of these questions.  Have the answers ready beforehand.

If you get a quote that’s above what you were expecting, ask the representative or broker what’s making it so expensive.  In some cases, insurers will lower the quote if you can assure them you’ll put in place risk mitigation measures.  For example, if you install a security system and a proper deadbolt (if you live in a bad neighborhood) your premiums will be lower.  Some companies will also give you a rebate if you keep a fire extinguisher in the kitchen!

It’s absolutely critical that you answer everything truthfully, even if it means paying a few extra dollars more a month.  If ever you need to process a claim and the insurer finds out that the damages were caused by risk they were misled about, you could be left without proper coverage.

What about ‘Acts of God’?

Most people use this term to describe damages originating from extraordinary events such as tornadoes, earthquakes, hurricanes, hail and wildfires.  Although you hear it often, it isn’t a term used by insurance companies.  While the person giving you a quote will know what you’re talking about, you’re unlikely to find it written down in official document. Instead, insurance companies in Canada use the term ‘perils’.

When you’ll receive your insurance policy, it will list perils that are covered and exclusions that it doesn’t.  If you believe you are exposed to some risk by perils that aren’t covered, you can opt to purchase coverage for certain exclusions built in to your policy.  These are usually called ‘endorsements’.

The best thing to do is to research when what the most common disasters are in your area.  For example, if your condo is located near a river or waterway, check to see how often flooding occurs.  If you’re in an area prone to strong winds, try and find news articles of when the last time serious damages occurred from such events.