Grace Cary/Getty Images
Most people are familiar with renters insurance, homeowners insurance, and condo insurance, but there are eight types of homeowners policies based on the type of home you have.
If you bought a townhome and want to get homeowners insurance, you might not be sure what to get: homeowners or condo insurance. The determining factor that will help you decide is whether or not your townhouse is part of a homeowner association (HOA).
Homeowners insurance is not required by state law. However, if you have a mortgage, your lender will require homeowners insurance to protect the investment. If you have a homeowner association, most require homeowners insurance.
Even if you don't have a mortgage, homeowners insurance is generally a worthwhile investment because it protects your dwelling and personal belongings — and it also offers personal liability coverage if an injury happens on your property. The issue is whether you can afford not to protect your home — which is most Americans' biggest asset.
If you are renting a townhouse, then you need renters insurance. However, if you own your townhome, the type of homeowners insurance you need depends on whether you are part of a homeowner association.
If your townhouse is part of a homeowner association (HOA), then you will need HO-6 condo/co-op insurance. If you own your townhome and there is no homeowners association, that means that you are responsible for the dwelling and need a standard HO-3 homeowners insurance.
The major difference between standard homeowners insurance and condo/co-op insurance is the dwelling coverage.
Homeowners living in a house have dwelling coverage for the home and any structures on the property. HO-3 is the most common type of homeowners insurance because it covers the house, your belongings, and liability coverage.
If you live in a condo or co-op, the building and common areas are owned by the condo association. They are covered by the condo or co-op association's master policy which condo owners contribute via condo or homeowner assessments, known as HOA fees.
The condo association's master policy covers liability for injury that occurs in common areas. You need to check your association's by-laws to determine whether the master policy has "all-in" coverage or "bare walls" coverage.
Although the condo association's master policy covers the building and common areas, your assessment payments do not cover the contents of your unit, injuries that occur in your unit, or damage to your unit. Condo insurance is referred to as "walls-in" coverage because it covers everything inside your walls, whether that's your property, your liability, or damage inside your unit.
Also, condo and co-op owners get a specific type of coverage called "loss of assessment," which covers any additional costs that may be requested should the condo association's own coverage fall short. In the event that the association's coverage isn't enough, the association will ask for additional payment from each condo owner. Loss of assessment coverage helps condo owners cover those payments.
| Coverage | HO-3 Special homeowners | HO-6 Condo/Co-op |
| Dwelling/Structure | Yes | Master policy* |
| Personal liability | Yes | Yes |
| Personal belongings | Yes | Yes |
| Loss of Use (additional living expenses) | Yes | Yes |
| Loss of assessments | No | Yes |
| High-end electronics/special jewelry | Limited** | Limited** |
| Equipment breakdown | Yes | Master policy* |
| Electrical outage | Yes | Master policy* |
| Service lines | Yes | Master policy* |
| Cyber liability | ** | ** |
| Flood | No*** | No*** |
| Earthquake | No** | No** |
| Water damage | Yes | Yes |
*Consult condo/homeowners association's master policy and by-laws
**Available as add-on coverage if not part of policy
***Required if you are in a flood zone, but most homeowners experience some flood
Like a traditional home, you should have enough townhouse insurance to pay for its replacement cost or the amount it takes to rebuild damaged property without accounting for depreciation. In fact, your replacement cost coverage may not always be enough as inflation continues to rise so experts recommend having an inflation guard to ensure there are no gaps in your coverage.
As mentioned, if you are a condo owner, you're usually only responsible for the interior of your unit. The amount of coverage you purchase should equal the value of the property you have ownership over. That said, you may only need several thousand dollars of coverage to insure your unit.
A condo is an apartment-style building but instead of a landlord, it's managed by the condo association. The association is responsible for the building and common areas. A townhouse is like a rowhouse and you share one or two walls with your neighbors. A townhome may have an attached or detached garage.
| Condo | Townhouse | |
| Ownership | Condo owners only own the interior of their unit. All other areas, including the building exterior and communal areas, are property of the Homeowners Association (HOA). | In most townhouse communities, owners own their unit's interior and exterior, including the roof, lawn and driveway, but not the communal areas. |
| Architecture | Condos come in many different styles. They may be part of a large high rise, a cul-de-sac of cottages, or anything in between. | Townhouses are designed in rows, so tenants usually share at least one wall. It's common for townhouses to have two or more stories. |
| Community | Condominiums often have a community focus with a clubhouse, pool, golf course, and/or similar amenities. | Some townhouse communities offer the same types of amenities as condos, but others are more private. |
| Homeowner Association (HOA) fees | HOA fees for condos are typically higher than townhouses because they pay for exterior upkeep, such as lawn care, trash removal, and pest control. | Townhouse owners pay lower monthly HOA fees because they pay for much of their own upkeep. Certain types of maintenance and trash removal are still handled by the HOA. |
| Homeowner insurance rates | Home insurance rates are usually lower for condos because owners only have to insure the interior of their unit. | Townhouses may have higher home insurance rates since most owners need insurance that covers both the exterior and interior. |
| Size | Although condos come in many sizes and styles, they are generally smaller than townhouses. | Townhouses can be quite large and often feature multiple stories. |
| Privacy | Depending on the style, condos could be private, individual homes or apartment-style units. | Townhouses share one to two walls with neighboring units, but don't have units above or below them. |
Data from Nationwide
According to the Insurance Information Institute, the national average for home insurance premiums is $1,272. The average annual condo insurance premium in the United States in 2017 was $488, according to the Condominium/Cooperative Unit Owner's Insurance Report by the National Association of Insurance Commissioners (NAIC).
Homes located in weather zones or disaster-prone areas such as flood zones, hurricanes, tornadoes, wildfires, mudslides, hail, and earthquakes will have increased premiums because these types of events are not included in basic coverage. Therefore you will need to pay extra for protection against these perils as an add-on rider.
The cheapest price may be okay for renter insurance. However, if you're a homeowner the cheapest price is probably not the way to go if that means a company isn't responsive when you file a claim. For many homeowners, a home is their biggest asset and homeowners insurance helps protect it. It is important to also focus on customer service, complaints, and the reputation of the insurance provider.
If you currently have homeowners insurance, review your policy coverage yearly. If your homeowners insurance company hasn't provided the level of service you expected, consider selecting a new provider.
Remember that low rates don't equate to good customer service. The average cost for homeowners insurance will vary based on the state where you live and whether you are urban or rural. Look at other factors like customer satisfaction rankings, like those from J.D. Power, coverage types, and coverage amounts. This is especially important for those living in disaster-prone areas when good service and sufficient coverage can make all the difference.
