Condo Insurance – Are you really insured?

Are you properly insured against fire, theft, or water damage in your condo or townhome? If disaster strikes, who is going to repair the damage? Will your condo insurance cover damage inside the condo or is it up to you?

You may need to obtain what is known as an HO-6 policy. This type of insurance protects you, the condominium or townhome owner, and makes sure your home is restored to proper condition after a disaster.

When most people buy a condo or townhome for the first time, they call their insurance agent, explain that they are buying a condo unit, and that they need to provide proof of insurance to their lender. The agent then provides proof of insurance to the mortgagee in the form of a Certificate of Insurance or some other Proof of Insurance and the transaction is completed. Typically, that proof of insurance relates to the condominium association’s master policy, not your personal condominium unit.

In most cases, however, there is a large gap in coverage inside your condo. Most condominium association master policies only cover exteriors and common areas. If you, the condo owner, suffer a loss, you are most likely underinsured, or not at all, unless you have an HO-6 policy.

To fully determine the adequacy of your coverage, you and/or the insurance agent should review the condominium master policy and condominium governing documents (CC&R). Your condo may have “walls-in” coverage in your master policy (now required by Fannie Mae). However, this can be a false sense of confidence in the coverage, as “wall in” coverage would likely be limited to replacing the interior fixtures with what was originally installed.

So if you have a 30 year old condo that was recently updated with granite countertops, custom cabinets, marble floors, double pane windows, etc., then you will only be paid to replace the original fixtures: Formica countertops, green carpeting, low quality cabinets and single pane windows. However, an HO-6 policy with replacement cost coverage would ensure that you have coverage for what you had at the time of the loss. Just as important, the HO-6, in Coverage A, will likely secure the condominium association’s master policy deductible if assigned to the unit owner.

Even worse would be finding out that your condo association only had a “bare walls” policy. This means that he has absolutely no cover for anything within his unit. If you suffer a loss, you would essentially be without coverage unless you also had an HO-6 policy.