Condo Insurance - Are you Covered?

Most people don’t necessarily understand how their insurance policy works…but then throw a condo in the mix, and worry about common and personal property issues! What a headache! Here is a little info about condominium insurance and an example of a recent condo insurance claim.

Although an association's master policy may cover the exterior and the rebuilding cost of the barebones interior of your home, there is much more to protect. A HO-6 policy is a regular homeowner’s policy, tailored specifically for the special needs of condominium homes. These policies cover the interior structure of the unit and personal property inside. In most cases, the community’s master policy only covers areas such as the common walkways, roof, basement, elevator, and boiler, for both liability and physical damage–but nothing inside your home except in special circumstances.

Your HO-6 policy provides coverage for damage to furniture, computer equipment and clothing. It may also provide personal liability coverage, medical coverage for guests injured in your home, and coverages for improvements or upgrades, such as flooring or granite countertops. 

Under new FNMA (Fannie Mae) and FHA requirements, HO-6 policies are now required for all new loans. Sounds like common sense - but before the housing market changed, lenders didn’t necessarily require HO-6 policies, and many condominium unit owners were (and still are) under the mistaken impression that the master condominium insurance policy covers all damage to the interior of his/her unit as well as damage to furniture, appliances, etc. In the event of disasters such fire, the rebuilding that occurs from the master association policy may possibly leave you with a shell of a home!

Another benefit of an HO-6 policy is that in certain situations, it will provide gap coverage caused by the often-high deductibles on a master insurance policy. Typically, condominium documents stipulate that the unit owner is responsible for losses falling below the deductible. A well-tailored HO-6 policy protects you in this situation.

HO-6 policies can also provide coverage for assessments applied against an individual unit due to a direct loss to the condominium. This type of coverage is called “Loss Assessment” and protects against an assessment from the Association for an uninsured loss, an underinsured loss, or as a result of the deductible for a given loss. The loss must be a “peril” covered under the unit owner’s individual policy. A standard condo policy typically provides only $1,000 in loss assessment coverage – absolutely increase this coverage to at least $5,000!

A real life example

The homeowner on the bottom unit of a two-story building called the management company to report that water was leaking through his ceiling from the unit above. The source was the air conditioning condensation line in the condo above him. This had possibly been leaking for several months, since the upstairs homeowner had not lived in the unit for some time. This homeowner did not have insurance, and the Association’s deductible for this type of claim was $7,500. The deductible had to be paid by the homeowner suffering the damage. Unless negligence can be proven (which is very difficult to do), each homeowner is responsible for repairing his own interior damages, regardless of the source of the damage. The impacted owner discovered that it was more cost effective to just pay for the repairs out-of-pocket, rather than file a claim on the Association’s master policy. If HO-6 insurance had been in place, he would have only had to pay a $250 or $500 deductible, with the HO-6 policy covering the rest of the $7,500 deductible.

In the above example, be aware that there may be different deductibles for the Association’s master policy, depending on the cause of the damage. It is not unusual to have a $5,000 deductible for all except water damage, and a water damage deductible of $25,000. Make sure your HO-6 covers these variations!

If you have not already done so, get with your insurance agent today and confirm you have appropriate coverage!