In recent years, modern condos and apartments have become popular in the Southern California real estate market and 70% of the buyers are young adults. The insurance you need for a condo is very different from the insurance you need for a house. However, if you are using loans, there might be additional restrictions. Be careful when deciding which one to buy because that can save you a lot of money!
What’s included in the HOA fee?
A condo is a type of real estate divided into several units that are separately owned. They share the common area such as hallways, laundry rooms, swimming pool, gym, etc. Because of that, there is an unavoidable fee – Homeowners Association Fee (HOA).
In the breakdown of an HOA fee, you will see “Master Insurance Policy”. When you finish your escrow, the Master Insurance Policy will be the first item you must review. In addition, the mortgagee will also require homeowners to get HO-6, also known as condo insurance. When a fire damages your condo, or any other damages occur, HOA will be responsible for the repair. HO-6 only covers “wall in”, which means your interior design, personal property, and homeowner’s liability.
A lot of homeowners don’t understand these two kinds of insurance, and think that they already have HOA insurance, so they cancel their condo insurance right after the escrow closes. However, doing this will not only lose the protection of your home but there will also be an extra charge. The reason is that if you buy a condo with a loan, the mortgagee will ask you to buy condo insurance (HO-6) in order to protect their property. If the mortgage finds out that you don’t have insurance, they will insure your home with their own insurance, which can cost a lot more than insurance in general.
Condo liability insurance is very important!
When you live in a condo, you often share walls with your upstairs, downstairs, or next door neighbors. If there is a fire or water damage in your condo, it affect more than just your condo. If the water damage affects your neighbor’s ceiling, rug, or any other property, liability insurance can cover the damage. For example, if you damage the carpet, and you have insurance, then you would pay for your damage, but if you don’t have insurance, then you will have to pay for your neighbors’ carpet damage as well.
Make Sure Your Tenants Have Renters Insurance
A lot of buyers buy condos as an investment and rent it out. So when renting out your condo, you should request your tenants to buy renters insurance, also known as HO-4. Renters insurance covers tenant’s loss of personal property and liability, and does not include landlord’s personal property and the actual building. As a landlord, it is better that your tenant has renters insurance because when there is water damage and your tenant does not have renters insurance, then you will be held responsible for the damage.
Luxury apartments with professional management are getting popular among the millennials. When signing contracts with the apartment, they will request for you to get renters insurance. Here’s a tip to help you save money: Some insurance companies offer discounts if you buy renters and auto insurance together.