Insurance Needed to Close on a Townhome
A town house is usually contained within a multiple-unit residential complex. Each unit is individually owned. Unlike a condo complex where elevators, hallways and entrances may be shared, with a town house, each unit usually has its own entrance. Like a condo, there may be shared walls, roof lines, a swimming pool or recreation area. Town house insurance reflects all these factors.
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When the Community Has a Master Policy
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In many cases, a townhome community will have a master insurance policy, much like a condominium association insurance policy. The master policy provides coverage against damage that could occur to the common structures, such as shared walls and roofs. The coverage may include perils such as fire, windstorm and vandalism. The master policy also covers common areas, if there are any, such as parking lot, tennis courts, playground or swimming pool. In many instances, the master policy will have liability coverage for the community. The insurance may include some limited coverage for individual owner's personal property. If you are purchasing a town house with a mortgage, the lender will want to have information about the master policy before closing.
Homeowner's Insurance as a Master Policy Supplement
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Even if the community master policy is in place, your lender may require you to have separate homeowner's insurance. Such insurance could fill in the gaps that the master policy does not cover. For example, the master policy limits on the dwelling, the lot and any additional structures, such as fences and a garden shed, may not be enough to satisfy the lender. The limits of liability also may not satisfy your lender. In either case, you could purchase homeowner's insurance that would align with lender requirements.
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When the Town House Community Has No Master Policy
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If the town house community has no master policy, your lender will insist that you have homeowner's insurance similar to what you would have for a stand-alone residential house. This includes adequate property damage coverage for the dwelling and liability insurance coverage. Additionally, while the lender may not require it, you might also want insurance coverage for your belongings in your town house in the event they are damaged, destroyed or stolen.
Other Lender-Requested Coverage
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Insurance regulations vary widely from one U.S. state to another. Lenders may review a town house master policy and advise you to obtain different types of insurance than are offered in the master policy. For instance, if water damage is not covered and the town house is built in a known flood zone, you may need to purchase separate flood insurance.
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References
- Photo Credit New Townhouse image by ne_fall_photos from Fotolia.com
