Condo Insurance: The Policy That Starts Where the Association’s Ends

By The NMH Agency Team, Licensed Agent

Condo insurance is a boundary dispute waiting to be understood.
Somewhere in your building runs an invisible line: on one side, the
association’s master policy; on your side, your own HO-6 policy.
Everything about insuring a condo well comes down to knowing exactly
where that line sits in your association, because it moves from
building to building, and the owners who guess wrong discover it during
the worst week of their ownership.

Find your line:
three flavors of master policy

The association’s master policy covers the building’s common
elements: roof, exterior, hallways, amenities. Where it stops at your
unit’s edge comes in three flavors, named in your association documents
(the CC&Rs and the master policy itself, which you’re entitled to
see, and should).

Bare walls: the master policy stops at your unit’s
unfinished perimeter. Everything inside, drywall finishes, flooring,
cabinets, fixtures, appliances, is yours to insure.

Single entity / walls-in: the master policy includes
the unit’s original standard finishes as first built, while improvements
and betterments (your renovated kitchen, upgraded floors) are yours.

All-in: the generous version; the master policy
covers the unit’s interior including improvements, leaving you mostly
contents and liability.

The difference between bare-walls and all-in can be $100,000 of
dwelling (Coverage A) exposure on your HO-6, which is
why “how much building coverage do I need?” has no answer until the
documents answer it. When we quote condos, obtaining that answer is step
one, and it’s remarkable how many existing policies we review were
clearly written without anyone asking.

The rest of the HO-6, briefly

Contents (on replacement cost, with our home-inventory advice
applying fully), loss of use if a covered event pushes you out, personal
liability (your tub overflowing into the unit below is the classic condo
claim, and it’s a liability event; carry real limits), and the special
valuables limits our scheduling article covers. Standard equipment,
condo-flavored.

Then the two coverages that make condo insurance genuinely different,
and genuinely underbought:

Loss assessment coverage. When disaster hits the
common property and the master policy falls short, associations
bill the gap to owners as a special assessment: the roof after the hail
year, the lawsuit that exceeded the association’s liability limits, the
master-policy deductible itself. Loss assessment coverage pays your
share of covered assessments, and it costs almost nothing, often $25 to
$75 a year for $10,000 to $50,000 of protection. Given the direction of
master-policy deductibles lately (next paragraph), we now treat robust
loss assessment coverage as standard equipment, not garnish.

The master-deductible trap. Associations, squeezed
by rising premiums, have been raising master-policy deductibles
dramatically, wind/hail deductibles in percent-of-building-value terms
especially, and many associations pass the deductible for unit-affecting
claims to the affected owners. Translation: the building takes hail, the
master policy’s deductible is $250,000 across the association, and your
share arrives as an assessment. Your HO-6’s loss assessment limit (and
whether it covers assessments arising from the master
deductible, a fine-print point that varies by carrier and
state) suddenly matters enormously. This is a live, evolving issue in
condo insurance, and it’s exactly the kind of thing an annual review
with an agent catches as your association’s coverage changes.

Townhomes, and other
identity questions

A note for townhome owners, who live in this article’s suburbs:
whether you need an HO-3 (regular homeowners) or an HO-6 depends not on
what the building looks like but on what your HOA’s documents say it
insures. Fee-simple townhomes where you own the structure usually take
an HO-3 with the HOA covering only common areas; condo-form townhomes
take an HO-6. The documents rule; the floor plan doesn’t. Buying
anything with an HOA means reading (or having us read) the insurance
section before closing, and sizing your policy to what’s left over.

The condo owner’s annual
two questions

Each renewal, ask: has the association changed its master policy or
deductible this year (they’ve been changing), and does my Coverage A
still reflect both my documents’ boundary and my actual interior after
any renovation? Those two questions, plus the loss-assessment limit
check, are the entire maintenance program for condo coverage, and they
take ten minutes with someone who reads association documents for a
living. That’s us, and we find something worth fixing more often than
not.

Condo or townhome, and not sure where your line sits? Call
800.388.6780 or request
a quote and send the association’s docs. We’ll draw the boundary and
build the policy to it.