Homeowners insurance for a townhouse or townhome

• For townhomes, the type of homeowners insurance you need depends on if there's a homeowners association.
• If there's a homeowners association, you will need condo insurance. If not, you will need standard homeowners insurance.
• For condos and co-ops, dwelling coverage is provided by the condo association's master policy.
• Visit Personal Finance Insider's homepage for more stories.

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).

Do I need homeowners insurance for my townhouse?

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.

What kind of townhouse insurance do I need?

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.

Condo/co-op insurance vs standard 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.

*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 

How much townhouse insurance should I buy?

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. 

1. Figure out the amount of coverage you need for your dwelling: There are a number of ways to estimate your dwelling's replacement cost. You can obtain an estimate through your insurer, an online replacement cost calculator, an in-person contractor or appraiser, or by calculating it yourself. You should also determine which elements of your home's structure you have ownership over and which parts are communal. 
2. Determine the value of your personal property: Your personal property will include items such as furniture, jewelry, electronics, and appliances. A standard homeowners insurance will only cover the actual value of your personal property meaning that you will only receive compensation for the depreciated value of your belongings. However, home insurance providers will typically offer replacement costs and inflation guard endorsements for your personal belongings at an additional charge. 
3. The amount of liability coverage you need: You can use your own discretion to calculate your liability coverage, however, it might be a good idea to think about your lifestyle and risk factors when deciding on your limits.

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. 

What is the difference between a condo and a townhouse?

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.

Data from Nationwide

How much does homeowners insurance cost?

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. 

How to find homeowners insurance

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.