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Someone who owns their own home can purchase homeowners' insurance to protect them, while someone renting an apartment can pick up renter’s insurance. But what about condo owners?
Where can they get coverage to protect them from disasters?
HO6 insurance, or condominium insurance, is designed specifically for condo unit owners. If you own a condo, getting an HO6 policy is a smart move.
Why condo owners need HO6 insurance
Condo owners are in a very different situation from renters or from those who own houses.
If you own a house, you own the whole building plus (usually) the land it sits on. If you rent, you’re not responsible for the structure, just your possessions. But if you own a condo unit, you own a small portion of the entire building. If disaster strikes, you need some kind of additional coverage to account for any damage to the parts of the building you personally own, plus property damage for your possessions. That’s precisely what HO6 insurance is designed to do.
What an HO6 insurance policy covers
An HO6 insurance policy protects the interior structure of the unit you own, plus the possessions you have inside your unit. For that reason, it’s also known as “walls-in” insurance. Most HO6 policies also give you personal liability coverage, which protects you in case someone decides to sue you based on something that happened inside your condo unit. For example, if the UPS delivery driver carried a package into your unit, slipped on a toy, and broke his or her leg, your HO6 insurance would help pay the costs of the resulting lawsuit.
HO6 policies generally also include loss of use coverage. If damage to your condo unit prevents your living there for a time, loss of use coverage will pay for related expenses such as hotel fees and meals. Check your policy to see what types of and how much loss of use coverage it includes.
What a condo master insurance policy covers
If you examine your list of recurring condo living expenses, you’ll likely see a charge for insurance. This isn’t for HO6 coverage; rather, it’s for your share of the condo master policy.
Condo master insurance covers all the building’s common areas, including the roof, any walls that aren’t part of an individual unit, and external features like swimming pools and landscaping areas. The damage that occurs in one of these areas is the responsibility of the condo association or HOA. However, if the damage affects both a common area and one or more individual units, things can get complicated.
For example, let’s say a fire starts in your unit and spreads to both the hallway (which is a common area) and your neighbor’s unit. In that case, the damage might fall under your condo policy alone or some combination of your policy, the master policy, and your neighbor’s HO6 policy.
How to choose an HO6 insurance policy
If you got a mortgage to buy your condo unit, you’re most likely required to carry HO6 coverage. Even if you don’t have a mortgage, an HO6 insurance policy is just as important as a homeowner's insurance policy would be to someone who owned a house.
HO6 policies come with a number of different coverage options. It’s important to understand what your choices are before you pick a policy.
Your choice of perils
HO6 policies come in one of two forms: named perils or open peril. Named perils policies only cover specific types of problems – fire, theft, and the like. The policy will include a list of potential problems and anything not listed is not covered. Open peril policies, on the other hand, cover all types of damage except for those specifically listed as not covered in the policy.
An open peril policy will be more expensive than a comparable named perils policy, but if you’re worried about damage from an unexpected source, the extra expense might be worth it.
Extra coverage options
The basic HO6 insurance policy is extremely helpful, but may not be comprehensive enough to meet your needs. Consider adding one or more of these other types of coverage.
Certain types of damage are almost never covered by HO6 insurance, including flood and earthquake damage. If you’re concerned about either of these types of damage, you’ll likely want to get a separate policy of that type. For example, if your condo is in Southern California, earthquake insurance might be a wise investment. Similarly, flood insurance will cover the cost of any water damage to your property if you live close to a coast or in a rainy area.
Loss assessment coverage covers any damage expenses to common areas of the building that unit owners would be expected to pay, at least in part. This typically happens if the damage is significant enough that it exceeds the master insurance policy’s coverage cap. Find out what the coverage limits are for your building’s master insurance policy, and that will tell you if a loss assessment coverage policy would be a smart move. If you leave your condo vacant for 30 days or more, your HO6 insurance policy may not cover any damages that occur during this time period. Vacant condominium insurance, on the other hand, is designed for just such situations. You can purchase vacant condo insurance before you leave for an extended trip to ensure that your unit will be covered if the worst happens.
Condo owners with high-value units or lots of expensive possessions may not be able to obtain HO6 coverage that’s high enough to replace or repair everything. In that case, an umbrella insurance policy can be a smart purchase. Umbrella insurance takes over after you hit another policy’s coverage cap. For example, if your HO6 coverage cap is $500,000, an umbrella insurance policy might offer coverage between $500,001 and $1 million.
Setting your HO6 limits
Mortgage lenders, condo boards and HOAs may all set minimum required coverage limits for your HO6 insurance policy. However, the minimum required coverage may not be enough to protect you and your possessions. HO6 policies generally have several different types of coverage caps.
Dwelling coverage protects you if the permanent fixtures in your unit (including floors, walls, ceilings, and cabinetry) suffer damage. You’ll likely want to get enough coverage to completely replace the entire unit if necessary. That way, even if a fire guts your entire condo unit, you’ll be able to rebuild the whole thing.
Personal property coverage protects all your possessions – basically, anything inside the unit that’s not affixed to it permanently. As with dwelling coverage, the smart move is to get a coverage limit that’s high enough to cover the replacement cost all of your personal property, if necessary. It’s also a good idea to reevaluate your coverage at least once a year, since buying one or two big-ticket items could require a higher coverage cap in the future.
Liability coverage protects you from legal problems caused by something that happens inside your condo unit. Get coverage that’s enough to protect your assets in a worst-case scenario. HO6 insurance policies usually include $100,000 in liability protection; however, if someone is seriously hurt in your condo unit and you’re found to be at fault, their medical payments would become your responsibility and could be significantly higher than $100,000.
Getting HO6 insurance at a good price
Before you sign up for any condo insurance policy, make sure that you compare rates from at least a few different insurance companies. All HO6 insurance companies look at roughly the same factors when setting their prices (including the age of the building, your location, and your deductible and coverage limits), but different insurance companies weigh these factors differently. As a result, identical policies may be priced very differently by different insurance companies. If you wish for an in-person consultation, a licensed insurance agent can help you with your comparison shopping journey.
It’s also wise to comparison shop every time your HO6 insurance policy comes up for renewal. You may find that a different insurer is now much cheaper than your existing one. Even if you don’t want to change insurance companies, this can be valuable information to have – you can then call your existing condo insurance company and tell them that their competitor is offering you a very attractive quote, then ask if they can match that rate. There’s an excellent chance that your existing company will at least offer you a discount to keep you as a customer.
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