repair gypsum wallboard and subflooring, but what about custom cabinets, expensive wallpaper or hardwood flooring that all were installed by the owner post-sale? And if the unit was being used as a home office, what about the cost to store files and pay for loss of use during the repair? As discussed above, HO-6 insurance covers several aspects of a loss that are not ordinarily covered under an association’s master policy. In the event of duplicate insurance, the association’s master policy is primary. To ensure a unit owner is fully covered for all potential damages, an individual unit owner policy is recommended (and required under Fannie Mae, Freddie Mac and FHA guidelines) to “fill in the gaps.”
Types of HO-6 Coverages
There are five types of basic coverages within a standard HO-6 policy: Dwelling; Personal Property; Personal Liability; Loss of Use and Medical Payments.
1) Dwelling coverage provides insurance for the interior real property not covered by the master policy, as set forth above. With a “bare walls” policy, unit owners will need more coverage than with an “all-in” association master policy.
2) The Personal Property coverage provides insurance for personal items damaged or lost due to a covered event. This coverage includes everything that is not permanently affixed to the unit. An example often used is if the building was turned upside down, whatever fell out of
the unit would be
characterized as “personal property” (clothing, furniture, electronics, etc.).
3) Personal Liability coverage protects the unit owner against claims for bodily injury or property damage caused to third parties on or away from the unit. Such liability by a unit owner would not be covered under an association’s master policy. The coverage includes defense costs in court and monetary damages up to the limits of the policy.
4) Loss of Use is coverage for when a covered event causes the unit to be uninhabitable or unfit for its intended purpose. This coverage ordinarily pays for reasonable relocation and storage costs, including hotel and meals. Depending on the policy, there may be coverage for owners who lose out on rental income following a covered loss.
5) Medical Payments provides coverage to third parties who are accidentally injured in the unit, including reasonable medical expenses. Unlike car insurance, age ordinar d for a no
quite low, but can be increased for a nominal premium increase.
the limits on this type of coverage ordinarily are can b
in premium Another benefit of HO-6 insurance is that, in certain
situations, it will provide gap coverage caused by the often high deductibles of a master insurance policy. In recent years, condominium associations have been cutting costs by increasing their deductibles, anywhere from $10,000 to $50,000. If a portion of this cost can be covered by one or more HO-6 policies, then everyone in the community benefits. What’s more, many associations have been transferring the cost of deductibles or other uninsured damages (e.g., losses that are below or near
expense payable by all owners, to the responsible or affected owner(s) who caused or contributed to the occurrence.3 tailored HO-6 policies will protect owners from this liability.
Tips for Buying HO-6 Insurance to determine what, if any, are the insurance requirements for unit owners.
what insurance is already provided for the unit. Unit owners should supplement and not duplicate coverage already in place.
supplemental insurance, such as flood or earthquake insurance. Also, consider how installation of safety and security measures, such as smoke alarms and security systems, will lead to discounted premiums.
coverages, definitions and exclusions
with
competing insurers. Make sure to inquire specifically whether the HO-6 Policy comes with “actual cash value” versus “replacement cost” coverage. In the event of a loss, this distinction could amount to a payout difference of many thousands of dollars.
referenced above, adding tens of thousands of dollars of special assessment or medical payment coverage ordinarily costs a few extra dollars in premiums each year.
HO-6 policies provide comprehensive protection above and beyond coverages afforded under a condominium association’s master policy. For a modest amount—generally less than $300 per year—unit owners can achieve added protection and peace of mind. In short, HO-6 policies are a “no brainer” and should be obtained by every condominium unit owner.
References 1 Often, individual unit owners are deemed insured persons with respect to liability arising out of the owner’s interest in the common elements or membership in the association.
2 In 2010, federal institutions including Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) changed their guidelines to require a condominium unit buyer to purchase an HO-6 Policy. Thus, for those owners who are purchasing via mortgage or refinancing condominium units, HO-6 policies are required.
3 To be enforceable, this deductible-shifting protocol must be set forth in an association’s Declaration.
the deductible) from a common Well-
In addition to the five basic coverages listed above, HO-6 insurers offer additional coverages, with the most important being Loss Assessment coverage. Loss Assessment provides protection against special assessments levied against units under specific circumstances. However,
every conceivable special assessment. In short,
it does not cover the loss
must be a covered “peril” under the unit owner’s individual policy and the master association’s policy, not be levied by a governmental agency, and not be related to earthquake damage. Most insurance companies provide a standard limit of $1,000, which can be increased up to $50,000 for a nominal amount. Most HO-6 insurers also offer earthquake insurance for additional cost.
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