Understanding Insurance for an Owner Occupied Condominium or Co-op: What is an HO6 Insurance Policy?

Insuring an owner occupied condominium or a co-op (we’ll refer to both as a “condo”) is different than insuring a standalone house because a condo Association will handle many of the maintenance and insurance issues associated with the complex.

A condo Master Policy typically provides hazard (property) and liability coverage for some of the structures and grounds, but typically does not provide coverage (or provides limited coverage) for inside each individual condo unit. So, owners of individual units need to protect their interests with an HO6 Condominium Policy. It is important when you purchase a condo that you understand what is covered by the condo Association’s Master Policy, and what risks are your responsibility to insure. Each condo’s Master Insurance Policy can differ as to what is and is not covered, so all unit owners should familiarize themselves with the policy at their own specific complex. Keep in mind that an HO6 policy is only available to condominium/co-op owner who will be living in the condominium – if the unit is to be rented to others, then an HO6 form is typically not available to the unit owner.

An HO6 policy is purchased by the owner of an individual condo unit, and protects your personal interest in the property. The main coverages provided by a HO6 policy include:

  • Additions and Alterations
  • Loss Assessments
  • Personal Property
  • Loss of Use
  • Personal Liability
  • Medical Payments to Others

Personal Property, Loss of Use, and Medical Payments coverages are easily understood, but Additions and Alterations and Loss Assessments coverages can be more complicated.

If the unit owner has taken out a mortgage on the unit, the mortgagee (lender) may require the mortgagor (borrower) to purchase and maintain certain additional coverages as specified in the lender’s mortgage agreement. These lender “required” coverages, which are spelled out in the mortgage agreement, typically include Additions and Alterations coverage, also known as Betterments and Improvements or Dwelling coverage. Additions and Alterations coverage will cover the parts of the structure that are not covered by the Association’s Master Policy. If, for instance, the Association’s Master Policy provides coverage from the paint on the walls out, this means that things like kitchen cabinets as well as other built-ins are not covered by the Master policy. Other Master Policies may cover from the wall studs out, which means sheet rock or hardwood floors are not covered. If the unit owner has a mortgage, the lender will typically ask the borrower to provide a copy of the Association’s Master Policy to them prior to closing. The lender will review this Master policy to see what is and is not covered by this policy, and then they will determine what, if any, additional coverages they want the borrower to purchase and to maintain in order to be eligible for and to remain in compliance with the terms of the mortgage agreement. Typically, a lender will not close on the mortgage until the borrower provides proof of insurance showing the type and limit of this additional “required coverage.” However, even if the lender’s mortgage document does not require the borrower to provide any other coverage other than the Association’s Master policy, the borrower still should consider purchasing an HO6 policy as this type of policy provides property and liability coverage for that which is not covered by the Association’s Master policy. 

 For example: a person purchases a condo unit in which the Association’s Master Policy covers the unit for all originally installed kitchen and bath built-ins, and provides physical damage coverage from the wall studs out; let’s assume the previous unit owner made extensive updates including a recently renovated master bath and kitchen, and installation of hardwood floors to replace the old carpets and linoleum. Since the Association’s Master Policy only provides coverage for the type of originally installed kitchen and bath built-ins, the higher-quality upgrades and the new hardwood floor would not be covered by the Master policy – so the new owner should consider using an HO6 policy to protect the additional investment in the improvements.

Another coverage that is unique to condo owners is Loss Assessment coverage. This coverage provides coverage to the unit owner in the event that the Condo Association assesses each unit owner for some unforeseen repair or update to the Condo complex. For example, the Association needs to install a new power main in order to meet new town electrical ordinances and assesses each unit owner $10,000 in order to do so. Without Loss Assessment coverage, the unit owner will have to come up with the $10,000 himself.

We recommend Condo owners work with competent insurance brokers who can explain all the risks associated with condominium ownership as well as all the coverages available through an HO6 policy. As you can see, there are many nuances to this type of coverage that should be addressed by someone who knows exactly how to provide the coverage you’ll need.