E very homeowner of a townhome, condominium or cooperative should have their own home-owner’s insurance policy. The common policy form is an HO-6 Policy. Before determining the exact level of cover- age needed on this HO-6 policy, you must know what type of coverage the association is required to carry as required by the as- sociation’s Governing Documents. Is it All In, Original Specifications or some level of Bare Walls coverage, and does the association’s policy follow the governing document requirements? Generally, the Declaration contains specific insurance requirements, but other sections, including the Articles of Incorporation, Bylaws and Rules and Regulations may have insurance requirements that supplement the Declaration.
An HO-6 Policy provides coverage for permanently attached items on the inside of your home that you may be responsible to insure such as cabinets, floor coverings and light fixtures, to name a few. These items may be called Coverage A, Real Property or Dwelling, depending on the carrier. The policy will also provide coverage for your Personal Property (furniture, clothing, personal items, etc.), Loss of Use or Additional Living Expense and Personal Liability including Medical Payments to Others. Loss of Use or Additional Living Expense provides for the reasonable costs to live elsewhere after a covered loss. An example would be if your unit was damaged by fire and you had to find other living ar- rangements while repairs were being made. Personal Liability will pay sums you are legally obligated to pay as a result of dam- ages arising out of bodily injury or property damage. Medical Payments to Others provides coverage to others who are injured while in your unit.
Another important coverage part of the HO-6 policy is Loss Assessment. The insurance company will pay up to the limit on your policy for your share of a loss assessment charged by the association against you as an owner. This can occur when the association carries a high deductible or has inadequate or no coverage in a particular area and all homeowners are assessed for the shortfall. Some policies provide only a minimum of $1,000 of Loss Assessment coverage. Check with your HO-6 carrier for increased limit options.
In coordinating your HO-6 policy with your Association’s Master Policy, the two most important coverages are Coverage A and Loss Assessment. Your Coverage A limit should always be at least equal to the master policy deductible as you will be responsible for damage to your unit that falls under the master policy’s deductible or that may not be covered under the master policy.
Once you determine the extent of coverage on the master policy; All In, Original Specifications or Bare Walls, you can determine what items and limits you need on your HO-6 Policy.
Generally, Bare Walls coverage is limited to the unfinished surfaces of the perimeter walls, ceilings and floors of a unit. This means that the association policy may only be responsible for the sheetrock and possibly one coat of white paint. Carpeting, millwork, light fixtures, wall coverings and cabinets would all be the responsibility of the unit owner to insure. In this scenario, the homeowner must determine the replace- ment cost value of these items and insure them under Coverage A.
Original Specifications coverage requires the insurer to return the unit to its original condition using materials of like kind and quality. Any improvements, betterments, additions or alterations made by any unit owner would not be covered unless they were upgrades done at the time the unit was originally constructed. If you or a previous unit owner have made changes to the home, such as, upgrading cabinets or flooring, or finishing off a lower level, additional Coverage A will be needed.
All In coverage is the most comprehensive. This would include all original installations, plus all improvements, betterments, additions and alterations made to the unit, regardless of when installed. It is important to understand your Association’s Governing Documents to find out what you as a homeowner are responsible to insure and then make sure your HO-6 policy fills in the gaps. If you rent your townhome or condominium unit to others, Coverage A and Loss Assessment coverage can be purchased through a Dwelling Fire policy or as an endorsement to your primary homeowner’s policy. Always consult with your personal agent and the association’s agent to determine what is right for your situation.