There are several decisions you’ll need to make when you purchase a condo, and one of the most important is the type of insurance you’ll need. Choosing wisely is the key to protecting your investment, your possessions, and your finances. Since a certain degree of coverage is mandatory, many buyers believe they don’t need to obtain additional insurance—but that’s not necessarily the case.
Before you decide what type of coverage is right for you, it’s important to know the basics. Here’s everything you need to know about condo insurance…
What’s included in your purchase
When you purchase a condo, insurance is required. Compulsory coverage falls into one of two categories. The first type, known as New Home Warranty insurance, applies to buyers who are purchasing pre-construction or newly-built units. It covers a range of potential defects related to the work and materials that went into your condo up until the one-year mark. Additional coverage continues up until two and seven years of ownership. Here in Ontario, New Home Warranty insurance is provided by Tarion.
Your condo corporation will also have its own insurance policy, and a portion of your monthly maintenance fees will go toward it. Coverage extends to common areas (like your hallways and amenities) and “standard units.” What constitutes “standard” may differ from one building to the next, but it generally refers to your condo minus any improvements you’ve made. In other words, if you’ve upgraded your flooring, your insurance will likely only cover the value of your original floors.
Mandatory coverage should be included either in your purchase price, or as an item in your statement of adjustment. You don’t need to worry about obtaining it on your own.
Should you buy individual insurance?
Many buyers are unsure about whether they should obtain coverage beyond what’s required with their condo purchase. While the decision is ultimately yours, individual coverage can provide protection in situations where you might otherwise be seriously financially impacted.
What you can be compensated for will depend on the specifics of your policy. Some of the most common things covered are the contents of your condo, any major upgrades you’ve made to it, and liability damages if a visitor (or their property) is harmed in your unit. You may also want to opt for loss assessment coverage, for situations where a portion of the costs from a claim involving your building or its common areas are passed on to you.
If you don’t purchase additional insurance, be aware that your personal belongings and any potential liability issues won’t be covered. In addition, you may be partially on the hook for building repairs stemming from problems that originate in your condo. A common example is when pipes in one unit burst and the damage spreads. What you (vs. your condo corporation) are financially responsible for will be laid out in your building’s bylaws.
How will you be compensated?
If you decide to purchase condo insurance, you’ll have to decide how you want to be compensated if you make a claim. Cash value compensation provides you with the depreciated value of your insured belongings. The downside of going this route is that the sum you receive almost certainly won’t cover the cost of buying the same item (or something similar) brand new.
In contrast, replacement value compensation allows you to avoid paying for new items partially out of pocket. While this type of coverage costs a bit more each month, it will provide you with the cash you need if you have to replace insured possessions.
A condo is a big investment. Protecting it—along with your finances—is important. For sound advice at every step, talk to a real estate agent with condo market expertise.
For over 30 years, our clients have trusted us to minimize risk, offer unbiased opinions, and ensure their best interests are served. Contact us today to talk about your needs, by emailing us at evan@christensengroup.ca or calling us at 416-441-2888 ext. 772.
