HO6 Insurance also known as “Condo Insurance” can be a very simple policy to write for a client, but it comes down to what the HOA master policy will or will not cover that will determine how much coverage you really need.
There is a big misconception that the HOA will put a consumer’s unit back exactly how it was prior to a loss. In reality, most HOAs in our area have moved away from that type of coverage. The vast majority, not all, only cover the shell of the unit leaving the unit owner responsible for rebuilding the interior structure. There are a handful of HOAs that will cover the interior structure, but it’s only back to builder’s grade or how it was originally built – NOT covering any updates or upgrades unit owners may have done over the years. There is a small handful that will cover the upgrades at time of loss, but they are few and far between in our area. You’ll pay a higher HOA fee each month with those few.
So we’ll stick with what most do – only cover the exterior and shell of a unit. In our experience, HO6 policies written with $5,000 dwelling (also called additions and/or alterations) grossly underinsure a consumer. At a minimum you should never go lower than $20,000. If the unit is bigger – $30,000 or higher would be most appropriate. Agents have access to tools to run replacement cost estimators to find the interior value that would give you the consumer the best coverage option.
HO6 policies at their core are very similar to one another, but the endorsements can very from carrier to carrier. Most will include wind/hail/hurricane with fire, theft, vandalism, and water damage. Flood and Earthquake coverage may be an optional coverage to add if a risk qualifies for it. We recommend that you try to have a policy that encompasses all those perils. The reason being is your loss assessment coverage on the HO6 policy helps cover the master deductible you as a unit owner have under the master HOA policy in a loss. Those deductibles typically start at $5,000 and go up. For the loss assessment to cover a peril that may have affected the complex, but not your unit, that peril has to be on your policy. It’s called mirroring coverage. So even if you unit let’s say is at a very low risk for flood damage, but the complex is at risk and DOES have flooding damage – they are going to assess each unit owner to help pay for that damage, so you would want the flood peril included on your HO6 policy for that reason.
As with any insurance policy, the basics are the same across the board, but it’s the endorsements that can differ from carrier to carrier, and you need to be aware of that. Don’t short-change your coverage to save on rate, because if you do have a loss, it may end up costing you more out of pocket by doing that. As always, make sure you understand how your deductibles work before a loss happens. Only select a deductible that you can realistically afford to absorb if something happens. You may go years without any claims, but it only takes ONE catastrophic event to change that complacency.