A condominium unit owners personal policy is known as an HO-6 is one of the toughest personal policies to correctly set up. The policy must cover your belongings, personal liability, and also the interior structural parts of your unit not covered by the association master policy. Be sure to examine the association documents to see exactly what part of the structural interior of your unit you are required to insure. In most cases the unit owner will have to insure everything beyond the bare walls and bare floor. If the association documents don’t clearly spell it out, you are most likely responsible for everything structural inside your unit. This includes carpeting, hardwood flooring, any floor and wall tile, bathroom fixtures, kitchen cabinetry, countertops, appliances, lighting fixtures, etc. Make a list of the structural items you need to insure, and then estimate the labor and materials cost to replace each.
Other things to consider when purchasing a condominium unit owner policy
For those of you that own a condominium unit you are likely familiar with the unit owner’s policy known as an “HO-6”. The “HO-6” is a form created by a company called ISO that most insurance companies use to write their condominium policies. Sure, some companies will tweak the “form” to create a semi-custom policy but generally speaking the HO-6 is a pretty standard policy across the board. Typical coverages include the structure, liability, loss of use, personal property, and loss assessment. Sounds easy enough, right?
Wrong! Here’s why: The HO-6 form identifies itself as a form of “excess insurance”. Meaning, your associations master policy is the primary insurance in this case. In the recent years association master policies have become significantly more expensive. One way that associations have attempted to control these premiums is by raising the deductible on these master policies. A $1,000 deductible now may be $5,000, $10,000, or in some coastal areas as much as $250,000! Although they keep the premiums in check, these higher deductibles come with one very large caveat. If a single unit owner is fully responsible for a covered loss, guess who is also responsible (depending on the association by laws) for covering this high deductible….the unit owner.
Trade publications keep mentioning deductible assessment coverage and how every unit owner needs to get it in order to cover the master policy’s deductible should they ever be responsible for paying it. This is a good point, however, this too comes with a caveat. I have yet to come across a company that sells an add-on to the HO-6 for covering the associations deductible. In reality, for a company to offer this coverage, it would be an underwriting nightmare. To rate this coverage accurately, HO-6 writing companies would need to review the master policy, review the association by laws, as well as obtain loss runs from previous claims on this master policy to see who was responsible for them all.
I have spent many hours pondering this issue and how it can be solved. Sure you can go back and lower the master policy deductible but then unit owners would be complaining about their HOA fees increasing due to their higher premiums. You could ask unit owners to share the expense of a master policy deductible, but who am I kidding, that would never fly. You could have the association foot the master policy deductible and surcharge the responsible party until they pay it back, but what happens if that person moves and no longer pays HOA fees? Companies that write master policies are quick to tell unit owners to “get something in writing from your HO-6 agent stating that your HO-6 will cover the master policy deductible”. That’s easier said than done. In the end I think one of two things will happen: 1. States will legislate on this matter most likely forcing HO-6 companies to pay the association deductible resulting in an overall increase in HO-6 premiums, or associations will eventually reverse the trend of raising deductibles and succumb to higher master policy premiums and monthly HOA fees for their unit owners in exchange for peace of mind.