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One challenge of homeownership is lining up enough insurance coverage to protect your assets without overspending on provisions you don’t need. The question gets even more complex when you live in a condo, where you have to consider the building as a whole, including spaces you share with your neighbors.
Condo master insurance, also called a homeowners association (HOA) master policy or condo association insurance, will protect common areas and shared components of the building and grounds. But to cover contingencies within individual units, each owner still needs their own condo insurance, often referred to as an HO-6 policy.
So what’s covered by the HO-6 vs. the master policy? Read on to learn more about potential omissions, exceptions, overlaps, and other ways in which your property may — or may not — already be insured.
Key Points
• An HOA master policy only protects common areas and shared building components, so a condo owner needs individual homeowners insurance, known as an HO-6 policy, to cover their personal possessions.
• An HO-6 policy also includes personal liability protection for mishaps in the unit and “loss of use” expenses.
• The amount of “walls-in” coverage required by an HO-6 policy depends on the building’s master policy, as “single entity” or “all-in” coverage may already include protection for original fixtures or unit improvements.
• Coverage limits or high deductibles on the master policy may subject a condo owner to loss assessments.
• The purchase of a condo almost always requires an HO-6 policy due to mortgage rules and, often, provisions in condo association bylaws.
What Is an HOA Master Policy?
As noted above, condo master insurance — aka HOA insurance — protects common areas and shared elements that belong to the residential complex. Knowing the master policy’s specific provisions will be important as you make decisions about your own condo insurance. So exactly what does HOA insurance cover? It applies to hallways, lobbies, elevators, and roofs, as well as onsite amenities like swimming pools, fitness centers, and outdoor areas. (To see the exact wording of your building’s policy, seek out copies of its master insurance declarations page and the certificate of insurance.)
There are three types of master policy:
• A “bare walls” policy covers only the structure itself.
• A “single entity” policy covers fixtures and installations as originally built.
• An “all-in” policy, the broadest type of coverage, includes fixtures and installations, and may even extend to unit owners’ home improvements.
Bare Walls Coverage Explained
The most limited form of condo master insurance, bare walls coverage, applies only to the basic structure of the condo building. It protects the building shell and generally covers exterior walls, roofing, subflooring, electrical wiring, stairwells, and the building’s framework. Bare walls coverage requires each unit’s owner to have a separate HO-6 policy to protect their home, its contents, and any improvements they’ve made to it.
Single Entity Coverage Explained
Single entity coverage goes a step further. It insures the features inside each unit that existed when the building was first constructed. This may include flooring, cabinetry, and built-in fixtures, as long as those items are original to the unit. Insurance for any later additions or upgrades is the unit owner’s responsibility.
All-In Coverage Explained
The most comprehensive form of HOA master insurance is all-in coverage, also known as “all-inclusive” coverage. It applies to the building’s structure, original fixtures, and installations, and also extends to improvements that unit owners may have made over time. Examples might include renovated kitchens, upgraded flooring, or custom cabinetry.
Recommended: What Is Condo Insurance (HO-6)?
HOA Master Policy vs Condo Insurance
Whatever type of master policy your building may have, its primary purpose is to protect the building as a whole. Individuals’ belongings are outside its scope of coverage.
So homeowners need to know the details of their HOA’s master policy vs. their condo insurance. Expect coverage of furnishings, electronics, and personal assets to be the unit owner’s responsibility. Condo insurance should also provide for personal liability and loss of use.
Comparing the details of an HO-6 vs. the master policy will also reveal any potential overlaps in coverage. Here are some significant aspects to consider.
Your Personal Property and Belongings
A master policy for the condo building does not cover personal property. Only an individual HO-6 policy will protect your possessions from fire, theft, vandalism, water damage, and similar perils.
Interior Upgrades and Alterations (Walls-In)
As a rule, HO-6 policies provide what’s known as “walls-in” condo insurance: protection of whatever’s situated inside your home. But the amount of walls-in coverage you need can depend on the building’s master policy.
If your condo association’s master policy is single entity or all-in, its coverage may include some of your unit’s original fixtures or owner-installed improvements. Knowing what the HOA insurance covers can help you weed out HO-6 provisions that may be redundant.
At the same time, you don’t want to be underinsured, which could easily happen if the condo association carries a bare walls or single entity master policy. Check to be sure your walls-in condo insurance covers home improvements such as remodeled kitchens, upgraded bathrooms, or custom flooring.
Personal Liability Protection
On the off chance that a mishap in your condo harms someone, you’ll want personal liability coverage. An HO-6 policy would pay medical expenses for people who are accidentally injured on your property. If you’re sued for that injury or for damage to someone’s property, the HO-6 should also help cover legal expenses.
Loss of Use and Temporary Housing
If something bad happens to your building or unit, you may have to relocate while repairs are made. This scenario, often referred to as loss of use, can get expensive fast, even if the in-home damage itself is covered. You’re still paying for temporary housing, hotel stays, meals, and other living expenses during this time.
That’s why HO-6 policies include loss of use coverage, aka “additional living expenses” (ALE) coverage. (The HOA master policy rarely provides this benefit to individual unit owners.) To be on the safe side, your policy’s ALE limits should account for lengthy repair timelines and high out-of-pocket costs.
Recommended: Condo Insurance vs. Homeowners Insurance
The Dangers of Relying Only on the HOA Policy
A HOA master policy may contain language or limitations that expose individual condo owners to risk.
The Risk of Loss Assessments
Coverage limits are key. If the HOA master policy’s limit is too low to pay a claim (say, from an injury lawsuit), unit owners have to pay their share of the shortfall. Your HO-6 policy should provide for loss assessment, but its limit may be low ($1,000 is typical), so consider supplementary coverage.
Also, be aware of existing claims on the master policy. As those are processed, you could be subject to a loss assessment, even if the incident took place before you bought your condo.
High Master Policy Deductibles
If your condo association policy has a high deductible, claims against that policy could lead to a cash crunch for individual unit owners.
HOA master policy deductibles often range from $10,000 to $50,000 or more. If a building repair costs less than the master policy’s deductible, the HOA’s policy won’t pay out. The repair bill must be paid out of pocket by the association’s reserve fund or, if need be, through owner assessments.
Recommended: HO-3 vs HO-6 Insurance: What’s the Difference?
Is Condo Insurance Required to Buy a Unit?
Trying to buy a condo without an HO-6 policy will almost always be a no-go. Lenders will typically require proof of coverage, as will condo associations.
Mortgage Lender Requirements
Understandably, a mortgage lender wants their collateral protected. Setting the standard, Fannie Mae requires HO-6 coverage at a level high enough to restore any damaged property to its previous condition, thus retaining its value.
Without proof of coverage, the lender may refuse to fund the mortgage.
After the sale goes through, owners are generally required to keep their insurance current. If the owner cancels their HO-6 policy or allows it to lapse, the lender can “force-place” a new policy on the condo and add the premium cost to the mortgage payment.
HOA Bylaw Requirements
Many condo associations’ governing documents — such as covenants, conditions, and restrictions (CC&Rs) or bylaws — require individual unit owners to carry condo insurance at a specified level of coverage. The aim is to protect the community, since a significant loss suffered by an uninsured unit owner could cause financial problems for neighboring units or the building as a whole.
The Takeaway
Condo association master policies protect common areas and shared components of the building, but don’t cover individual units. That’s why each condo owner needs individual condo insurance, known as an HO-6 policy, for their own unit. Be sure to compare the details of the master policy to your HO-6 to identify potential omissions, exceptions, and overlaps in your total coverage.
If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.
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FAQ
Does the HOA cover water damage inside my condo?
It depends on the details of your specific situation. Often, the master policy will cover water damage due to leaks from the roof, exterior walls, building-wide plumbing systems, or other shared areas the building is responsible for maintaining. However, the HOA’s policy typically won’t cover damage originating within your unit (say, a burst hose from your washing machine) or resulting from another unit owner’s negligence.
Who pays the deductible on an HOA master policy claim?
Again, the answer depends on the specifics of the claim. If the damage affects common areas, the association might pay the master policy deductible, possibly out of reserve funds or special assessments. When a loss involves common elements as well as one or more units, one typical approach is to divide the deductible among the affected homeowners based on the amount of damage to each unit.
What is the difference between HO-6 and an HOA policy?
An individual unit owner takes out an HO-6 policy (condo insurance) to cover the interior of their unit, including personal property, improvements, and liability. An HOA master policy, purchased by the association, covers the building’s exterior, shared structure, and amenities.
Does my HOA master policy cover my furniture or electronics?
Generally, no. To protect personal property — not just furniture and electronics but also jewelry and interior upgrades — you need an individual condo insurance policy, known as an HO-6 policy.
Can my HOA force me to buy personal condo insurance?
Yes, that requirement is legit — as long as it’s spelled out in the association’s covenants, conditions, and restrictions document (CC&Rs) or bylaws. Depending on the particulars of your building’s agreement, flouting such a rule may expose you to fines or penalties.
Photo credit: iStock/Drs Producoes
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