Condos Are In Demand and So Is Replacement Cost Coverage

// December 3, 2020
Reading Time: 3 minutes

With interest rates historically low, now might be a great time for some investors to add a condo to their portfolios. Typically, condos require less maintenance and upkeep than traditional single-family homes, making them attractive to those who want a hands-off investment.

The condo construction industry has seen an influx of new condos being built each year, ballooning to a $52 billion industry. Overall, industry revenue is expected to grow at an annual rate of 4.7% (IBIS World). With the events of the past year, more and more people are moving away from the coast to developing cities in the middle of the country, where condo growth is rapid.

Consider the following examples showcasing why condos are in demand:

  • A young professional who is busy with work may not want to mow the lawn and shovel snow and ice
  • A condo is a good starter option for singles and newlyweds
  • Baby boomers who want to downsize may opt to move into condos
  • A family owns a secondary property and rents it out via Airbnb

The idea that all condos are the same is a common misconception — there are high-rise condos, apartment condos and townhome-style condos. A commonality they share is that all condos fall under a condo/townhome association’s master policy. These policies provide the bylaws that tell condo owners what the association will cover, therefore determining what the insured is responsible for.

Condos differ from single- and multi-family dwellings in that the owner is not typically responsible for the roof, exterior and common areas within a condo location. The condo/townhome association’s master policy will cover these. There are two common types of association master policies: all in and bare walls. (Learn their differences here.)

The next step for the owner is to then calculate what it would cost to repair or replace all that they are responsible for within their condo. These common questions arise:

  • What is the right type of coverage for your contents?
  • If a claim occurred, and most or all of your condo was damaged, what would it cost to make you whole again as if the damage never occurred?
  • If you had a devastating claim, what would happen if you had actual cash value (ACV) on your building and its contents?

These questions show the importance of having replacement cost for contents on a condo policy. Some carriers offer ACV, and while this may save money on the condo insurance premium, think about the long-term consequences of buying ACV versus full replacement cost. In the event of a loss, an insured will receive the replacement cost less any depreciation.

  • If an insured’s condo and its contents are 15 years old, for example, the insured will be compensated for substantially less than someone who carries replacement cost for their building and contents
  • Think about a 10-year-old TV and how obsolete such an item becomes after just a few years; an ACV policy may not afford much coverage at all for older items — with replacement cost, the TV would be replaced with a new TV of similar kind and quality

As mentioned, condo associations often take care of all common areas, such as lawns and parking areas. They also handle amenities, like clubhouses, gyms and pools. This is why the condo industry continues to flourish and attract a wide array of property investors. Whether investors want to buy and live in their condos, use them as secondary homes, or rent them out on an annual or a short-term basis, the possibilities (and occupancies) are endless.

USLI can be your go-to solution for all of your condo risks. We can accept all occupancies listed above and offer replacement cost and special form, even on condos rented monthly, weekly and nightly. We can also list the condo association and property manager as additional insureds for no additional premium.

To learn more about our product, please contact your Personal Lines underwriter today!

As always, thank you for your support and business.

Stacy HeadshotContact Stacy Barrett
Product Leader | 888-523-5545, ext. 2108

Cory HeadshotWritten by Cory Bennett
December 3, 2020