Confused about the walls in your HO-6 policy coverage

Due to all the turmoil in the real estate and financial market, lenders are paying more attention to the type of protection you have on your condo, as this insurance would ultimately pay to replace or rebuild your collateral against your loan if it were destroyed or destroyed. damaged. who would blame them. Freddie Mac, Fannie Mae and the FHA have new requirements now to make sure you have these walls covered. I often see people in Northern Virginia who have purchased coverage and are paying too much for the wrong type, or are under the false impression that they don’t need an individual policy, because the master policy fully protects them.

Owning a condominium home is a little more complex than a single-family home, so let me give you some background to help you figure it all out.

With Condos there are master insurance policies and there are individual policies. The type of master insurance policy the board of directors purchases for your condominium association will determine what type of individual policy you will need.

There are two types of master insurance policies;

1. Bare Walls Master Insurance Policy – ​​This type of policy insures the exterior structure of the condo only against the wall studs. It is the individual’s responsibility to purchase insurance on their personal policy. This type of policy puts the responsibility to repair or rebuild the interior of your unit on your individual policy.

2. Single Entity Type Master Insurance Policy – ​​This type of policy covers everything that is conveyed at closing, including carpet, walls, cabinets, and fixtures. Some even cover any improvements or enhancements that have been made to the unit. This type of policy provides the walls in coverage that your lender is looking for. However, it is imperative that you understand that you still need a personal policy to fill in the gaps that the primary policy does not cover.

Whether your condo association has a Bare Walls or Single Entity policy, you’re leaving yourself in the creek without a paddle if you don’t buy an HO-6.

If your master policy is bare walls, you need to purchase insurance for the cost of rebuilding your unit from the studs in the walls as construction coverage on your HO-6. To determine how much it would cost to rebuild, you should consult with an appraiser or builder. Often, if you look at page 3 or 4 of your appraisal, there is a new estimated cost price you can use. It is often listed as a cost per square foot. Simply multiply that cost per square foot by the number of square feet in your unit and you’ll have an estimate of how much it would cost to rebuild.

You should also purchase homeowners insurance if your master insurance policy is a single entity type, to avoid having to pay the master policy deductible if there is a loss that affects your unit. Most master policies have a deductible of $5,000 or more, most individual policies have a deductible of $500, unless you want to pay. Do the question. If you’ve set it up correctly, your personal HO-6’s $500 deductible is the most you’ll have to pay out of pocket. Your individual policy will pay the $4,500 difference in this example until the master policy takes effect. This is what I refer to as the difference in deductible protection.

Also, some single entity type insurance policies do not cover the cost of upgrades and improvements to what was originally built…another key question to ask…

Many insurance companies handle this difference in deductible differently, some like homeowners coverage, others like loss assessment coverage, you should check with your insurance professional to make sure they know the master policy deductible so they can design an HO-6 accordingly.

The HO-6 or condominium unit owner’s policy fills in the gaps where there is no coverage under either type. Let me give you a few more examples of things that are not covered by any insurance master plan.

1. Your Personal Property – All of your personal property must be insured at 100% replacement cost value so that you can replace items lost to fire or theft.

2. Your personal liability: No master policy covers liability for bodily injury or property damage that occurs within the walls of your unit.

3. Loss of Use Coverage.- This coverage pays to put you up in a hotel and also pays for your out-of-pocket expenses, including food, lodging, and related items, while your home is damaged and uninhabitable due to a covered loss.

If you are renting your condo, everything I have told you above is true. There are some slight variations. This type of policy is commonly known as a homeowner’s policy or a rental condominium unit owner’s policy.

Instead of coverage for loss of use, you need coverage for loss of rentals. This coverage will reimburse your loss of rental income while your home is in repair and uninhabitable after a covered loss.

Now that you’re armed with the knowledge you need to get the right type of HO-6 policy for your individual circumstance, you should be able to sleep better at night. I know I will.