Cost Replacement Insurance for a Condo

Owning a condominium is different than owning a single-family residence, and insuring them is different too. Condo insurance doesn't offer protection for the exterior of the building since that is insured by the homeowners association's master insurance policy. This means that the condo unit insurance premiums are determined primarily on what's inside your unit, rather than a dwelling amount. A replacement cost endorsement can affect the size of your premiums as well.

Actual Cash Value

Property insurance, including condo insurance, is typically written as an actual cash value (ACV) policy unless you buy a replacement cost endorsement for it. When you file a claim for ACV settlement, your insurance company will do its best to calculate the value of your damaged items at the time the loss occurred by determining the items' cost when they were new and depreciating them by their age and condition. The resulting number is your ACV settlement.

Insufficient to Replace

Just as you rarely receive enough money from your auto insurance company to replace your vehicle after it is declared a total loss, you are similarly unlikely to receive enough money to replace the damaged items in your condo with an ACV policy. This is because values tend to decline over time, while the cost to buy the same item new tends to increase with inflation. If you want to replace your items, you must have a different policy type.

Replacement Cost

For additional premiums, many property insurers allow you to purchase a replacement cost endorsement for your condo insurance policy. This eliminates depreciation as a factor when the insurer calculates your claim settlement. Instead, the insurer typically offers you an ACV settlement and pays you additional money based on receipts you submit after you buy new items. This way, you are fully reimbursed for the actual replacement cost of the items you lost.

Verify Coverage

Standard homeowner's insurance must also have a replacement cost endorsement to avoid an ACV settlement, but many home insurers automatically include this coverage on their most popular products. This isn't true for condo insurance. Therefore, as a condo insurance customer, you have a greater responsibility to ensure you have replacement cost protection if you truly want it. It will raise the cost of your policy, but if you own many expensive items, you might find the cost well worth it.

References

• MSN Money; Insurance Worries For Condo Owners; Bankrate.com
• State of Wisconsin Office of the Commissioner of Insurance: Condominium Insurance
• State Farm Insurance: Condo Insurance
• Insure Condos: What is the Difference Between Replacement Cost and Actual Cash Value Coverage?
• Condo Insurance: Seattle Condo Insurance