What you Should to Know About Your HO-6 Policy

As a condominium unit owner there is a specific insurance form for you. The HO-6 policy is for unit owners. It combines both property and liability insurance in a single form. The unique areas of the form are related to property coverage, and this is where the details matter.

Building Coverage

You obviously do not own the entire building, but the values that you must protect can vary based on the wording of your association by laws. Bylaws can vary the responsibility of the association for items in your unit. An “all in” clause in the bylaws would make the association responsible for all of the interior finishes, appliances, and wall and floor finishes in your unit. Other bylaw provisions may make anything from the studs or drywall out your responsibility. Some bylaws may read as “all in” but the association insurance is designed to replace “building standard” equipment and finishes. If you have upgraded, the increased cost is your responsibility. This can be a challenge for new owners who are buying an existing unit. Not knowing the “building standard” may make choosing limits more challenging.

We ask our clients to provide us with a copy of the bylaws of the association so we can read the clauses in question and offer our counsel on your needs.

We make these observations as “only pay for what you need” and “15 minutes will save you 15%” do not help you with these decisions. You need an experienced insurance professional to guide you to a sound choice.

Contents Coverage

This is the value of the personal property you have in the unit. We recommend that our clients do a periodic inventory with video of their contents. This will help you identify things that have been added or deleted since the last time you set this value. Do not neglect property in off premises storage units. Your form may offer a sub-limit or a percentage of the contents limit for this exposure. Knowing the values exposed will clarify if standard policy terms are effective for your needs.

Loss of Use

In the event that your unit is not able to be occupied due to a covered cause of loss, you may be able to claim loss of use to recoup expenses for alternate living space. Different insurance companies have different ways to set this limit. The important issue to consider is how long should you project for loss of use coverage needs? A large loss at your building could easily cause more than a 12-month period for you to be away. Policy language should be specific that the time for loss of use can exceed the term of the policy.

Our staff understands how our carriers arrive at this limit and can help you select the correct coverage for this expense. The cost to get the right limit is a pittance of the costs of not having enough coverage.

Loss Assessment

In addition to knowing the details of your insurance program, you need to know the details of the master insurance program for the association. We would like to review both the bylaws and the master policy information as part of our due diligence.

These policies will have deductibles that are the responsibility of the association. The bylaws will allow the association to recoup these dollars via a loss assessment. You need to know the deductibles that apply to the master policy. Keeping in mind that there can be several different deductibles. A wind and hail deductible is common. This can be a fixed dollar amount or a percentage of the building’s value. There may be a different deductible for water damage, flood, and earthquake claims. The standard policy deductible will apply to all other perils.

The bylaws will describe how this assessment will be calculated. It may have all unit owners share in the expense, or it may have the deductible applied to the units involved in the loss. For a roof claim on a single building, the deductible could be shared by the owners in that building. Knowing the potential amount of this deductible and your share is key to setting the right limit.

Master Policy Valuation Clauses

In addition to peril specific deductible there can be peril specific valuations. For buildings with older roofs, the insurance carrier may apply an actual cash value (ACV) to the property. This will reduce the recovery and raise the potential loss assessment charge. To reduce premiums the carrier may change the entire policy to ACV from replacement cost (RC).

Fannie Mae and Freddie Mac have rules that limit their exposure to ACV coverage. They have a database of master insurance policies that have ACV language in them, and you may find that getting a mortgage or refinance a mortgage through these sources is difficult if your association has ACV language in the master policy.

Syncing your policy with the master policy

One strategy to consider is having your HO6 with the same insurance carrier as the master policy. If you have the right limits in place, any issues are then an internal debate at the insurance company. Which of the two policies will cover this loss? If you have a different insurance company, then it is which company can avoid the claim. While syncing may seem to be a bother, it may make life a lot easier at time of a claim.

The Driehaus Difference

We deal with these issues every day and are familiar with the various terms used in bylaws. We also know the structure of a master policy and how to interpret what forms are attached to the policy. We want to be your insurance provider. Our experience and expertise will help you get the most comprehensive and cost-effective insurance program. Call us at 513-977-6860 or use the contact tools on our website, www.driehausins.com .