By Devon Schad, The Schad Agency
When it comes to safeguarding your condominium or townhome investment, having the appropriate insurance coverage is vital. The HO6 insurance policy is specifically designed to fill the gaps left by the master insurance policy held by the association. In this article, we will delve into what HO6 insurance entails, its significance, key inquiries to make to your insurance agent or company, and the utilization of loss assessment in case you are assigned a portion of a deductible.
What is HO6 Insurance?
Although the condominium & townhome associations typically carry a master insurance policy, it usually only covers the common areas and the structure of the building. HO6 insurance steps in to provide coverage for personal property, interior unit items not covered by the master policy, personal liability, loss of use, and other areas of coverage.
Different Approaches to Master Policy Building Coverage
Specific requirements for your association can be found by reading the Covenants, Conditions & Restrictions (CC&R’s) or sometimes referred to as your Declarations:
Bare-walls
The “bare-walls” only insures the basic structure of the individual building, up to the bare-walls of the unit. Unit owners are responsible for insuring their own exclusive building property, such as sinks, cabinets, appliances, flooring, and wallpaper, along with any improvements and betterments.
Single Entity or Original Construction
The “original construction” covers most real property in a residential building, including fixtures in individual units. However, it doesn't include any structural improvements, betterments, or additions made by owners.
All-Inclusive
The "all-in" coverage includes all real property in a residential building, including fixtures in individual units and any improvements made by owners. It replaces a unit to its original condition after a loss. In this approach, the unit owner is only responsible for their personal property under the HO6 or unit owners form or losses below the associations all other perils deductible (AOP).
It is important to note associations may have different requirements of those above and may also follow what is outlined in the Colorado Common Interest Ownership Act.
Critical Coverages You Should Have
Building/Improvements/Betterments
The master policy may not extend to the interior of individual units, making it important to have HO6 insurance to cover gaps in coverage. This includes walls, floors, ceilings, fixtures, improvements or alterations.
Personal Liability Coverage
Provides personal liability coverage, protecting you in case someone is accidentally injured in your unit or away from it, or if you accidentally cause damage to someone else's property. This coverage excludes claims involving automobiles and business, which require separate coverage.
Additional Living Expenses (ALE) Coverage
In the event that your unit becomes uninhabitable due to a covered loss, HO6 insurance can cover additional living expenses such as temporary accommodation and meals until your unit is repaired or until you find a new permanent residence. If you rent your unit, this coverage can help cover the loss of rental income. Many policies only come with twelve months of coverage or a set limit which may not be enough to cover you for the time it will likely take to rebuild.
LOSS ASSESSMENT
Many association policies have a 5%-10% wind/hail deductible where unit owners are likely to be assessed a share of that deductible following a covered loss that affects common areas or multiple units. Loss assessment coverage, typically included in HO6 insurance policies, can help mitigate this financial burden. This percentage is based on the total building value and not the loss.
As an example, an association with 10 units and a $1,000,000 building coverage and a 10% wind/hail deductible will have a $100,000 deductible at the time of loss. To help cover this loss, most association will assess owners a share of this loss in equal portions, assessing $10,000 to each unit owner. Having the right loss Assessment may cover the entire $10,000 amount assessed.
Be careful when purchasing loss assessment coverage as some carriers have added this language below:
Special Limit
We will not pay more than $1,000 of your assessment
per unit that results from a deductible in the
policy of insurance purchased by a corporation or
association of property owners.
Having the language above will limit your payout, REGARDLESS OF HOW MUCH LOSS ASSESSMENT YOU PURCHASE.
It is important to note that some loss assessment endorsements must be in force at the time of the loss to the association as well as at the time you are assessed.
Review your HO6 policy to determine the maximum coverage amount for loss assessments and make sure you are covered for at least the greater of the master policy all other perils deductible or the wind/hail percent deductible.
Conclusion
As an owner, it is crucial to protect your investment and personal belongings. HO6 insurance offers the necessary coverage to safeguard your unit and personal property, providing peace of mind against unexpected events. Remember to ask the right questions when selecting a policy and understand the benefits of loss assessment coverage to ensure you have tailored insurance protection as a condominium & townhome owner.
Devon Schad currently sits on the Board of Director for CAI Rocky Mountain Chapter, is an Educated Business Partner, and owner of the Schad Agency. The Schad Agency is a family-owned business specializing in insuring association and has since its founding in 1976.
