What Do You Need to Know About Condo Insurance HO6 Policy?
TLTR: Condo insurance (HO6 policy) is a standard coverage that protects your belongings and your condo from unexpected perils. If you’re looking to purchase condo insurance, read on for a better grasp of the HO6 Policy and why you need it.
Community Associations Institute reports that up to 27% of Americans were living in homeowner’s associations and condo communities by 2020. If you’re one of those people, you should know that Condo Association Insurance usually only protects a building’s exteriors. It leaves out the interiors of your condo. An HO6 condo insurance policy covers your interiors, built-in appliances, and personal belongings against damage to your unit and property, additional living expenses, accidental fire, flooding, and other potential threats.
Whether it’s regular perils such as theft or fire damage, or additionally specified perils such as storm damage or personal property damage, an HO6 insurance policy will have you covered. The policy will also reimburse you for the cost of an alternative dwelling until your condo is repaired and habitable again.
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Is a Condo Insurance (HO6) Policy Required?
Unless your mortgage broker asks for proof of insurance, you’re not legally required to purchase insurance for your condo. You can settle for minimum coverage requirements if you choose to do so.
But it’s not a good idea.
Contrary to popular belief, insurance is more an investment than a means to an end. We highly recommend that you cover yourself against the many unforeseen risks your condo is vulnerable to, rather than just sticking with minimal coverage.
You can’t rely on your condo’s master policy to cover you. Condo Association Insurance only covers damage to the common areas of the building, such as the lobby, hallways, stairways, and other shared access points. To cover your personal injuries and losses, you need a personal condo policy.
Who needs a Condo Insurance (HO6) Policy?
Anyone who lives in a condo should have HO6 insurance. More specifically, there are three categories of folks who need it:
- Owners of the condo unit: If you live in a condo that you own, you’re going to need comprehensive coverage. A condo owner insurance policy protects all your belongings, premises, and future upgrades from water damage, accidental fire, theft, vandalism, and other perils.
- Renters of the condo unit: If you’re just renting, you can get condo insurance for rental property. Renters insurance protects your personal belongings and covers personal and premises liability and additional living expenses.
- Owners of the condo unit who sublet it: If you intend to rent out your condo unit, the insurance situation could get a bit tricky. You’ll need commercial condo insurance and landlord insurance as well as tenant insurance. Commercial coverage protects you against lost rental income.
What Does a Condo Insurance (HO6) Policy Cover?
Let’s look at the specifics of HO6 insurance coverage:
The coverage you need for your walls depends on what your Homeowners Association (HOA) provides. If your condo insurance master policy gives you all-in coverage, you won’t have to purchase dwelling coverage.
If your HOA covers only the bare walls, then you need dwelling coverage. Dwelling coverage protects you and your belongings from all named perils.
Liability and Medical Bills
HO6 insurance policy covers your guests should they injure themselves on your property. Your condo policy will cover medical bills for any injuries your guests sustain at your premises, as well as any legal fees if they should file a lawsuit against you.
Your insurance provider may include $100,000 in liability coverage in your policy. If you wish, you can scale it up to $500,000 as per your needs.
Condo Insurance (HO6) Policy Covers Personal Property
Condo insurance protects your personal belongings from theft, damage, or loss, but it’s important that you list all of the items you want covered. The policy provides coverage to your laptops, furniture, appliances, and other belongings.
The usual limit for property claims is around 50% of the condo coverage. But it’s always a good idea to ask your insurance experts about the exact amount.
Keep in mind that you won’t be able to cover certain belongings such as expensive jewelry, fur, and art collections. For those items, you should consider personal articles floater insurance.
An HO6 insurance policy covers selective water damage. This can be burst pipes or water from common areas such as roofs, hallways, etc.
For example, if your unit gets damaged because water leaked from the roof of the building and damaged your built-in appliances, then your HO6 policy will cover the repairs or replacements. If you need to stay at a hotel until then, your insurance will also cover the extra expenses.
It’s important to note that a standard condo insurance policy will not cover flooding. You’ll require separate flood insurance if you reside in at-risk areas.
Additional Living Expenses (ALE)
ALE coverage comes in handy when damage and repair work prohibits you from living in your condo. For instance, if your condo catches on fire, you’ll most probably be living away from your unit while someone repairs and renovates it. ALE provides compensation for any housing and living expenses incurred while your condo was uninhabitable.
Condo Insurance (HO6) Policy Covers Loss Assessment
As a shared owner of a condominium, you’re liable to pay for any injuries in the premises or damage to the condo building and common areas. Loss assessment coverage pays the amount you’re liable for which isn’t covered by your master policy.
What Are the Exclusions?
An HO6 insurance policy is not a bulletproof coverage. The standard condo insurance policy won’t cover these sets of exclusions.
Here are a few of them:
- Natural disasters: Natural disasters are hardly ever covered by standard policies. Insurance Information Institute states that earthquakes, for instance, are not covered under standard insurance policies. You’ll have to purchase separate coverage if you’re vulnerable to these named perils.
- Maintenance: If your condo requires maintenance due to long-term neglect, such as rodent infestation, termites, bugs, rust, and other damage, you won’t be able to file a claim.
- Intentional loss: Don’t expect your insurance provider to pay for any damage to your unit or any injuries to your guests that you inflicted with intent. If you deliberately stab your guest and expect your insurance to pay for their medical bills, you’re in for a great disappointment!
- Damage to your auto: Your insurance will cover damage to your personal property. Even so, it won’t cover any damage to your vehicles. To adequately protect your automobile, you’ll need a personal auto policy.
When Should I Buy a Condo Insurance (HO6) Policy?
Ideally, you should purchase an HO6 condo insurance policy as soon as you’ve purchased a unit. But that doesn’t mean that you should rush into whichever policy you find first. The best condo insurance policies aren’t one-size-fits-all. Instead, a policy that pinpoints and covers the unique risks that your condo is susceptible to is the right one for you.
It’s best to start window-shopping for insurance a couple of months before you’ve purchased the condo. After you’ve finalized all endorsements and exclusions, purchasing the insurance won’t take more than a few days.
Choosing the right exclusions and endorsements is crucial. For instance, Earthquake Authority reports that there are more than 500 active faults in California, making it a high-risk area for earthquakes. So, it’s good to add an endorsement for earthquake coverage to your condo insurance policy in California as soon as you’ve bought the unit.
If you live in an area more prone to disasters and haven’t purchased a policy yet, you should consider getting insured as soon as possible. Examples include endorsements for tornado damage in the Tornado Alley and hurricane damage in the southern East Coast.
How Much Should Condo Insurance Cost?
According to Value Penguin, the national annual average condo insurance cost is currently $488, although it varies widely by state.
All insurance carriers have a set of endorsements and exclusions that affect HO6 insurance costs. Here are some of the factors which may determine the cost of your condo policy:
A deductible is an amount you’ve agreed to pay toward a covered loss before the insurance payout kicks in. Generally, the higher you set your deductible to be, the lower your premium will be.
Proximity to Risks
If you live in an area that’s more prone to hurricanes, tsunamis, earthquakes, and forest fires, your insurance provider will naturally hike up your premium. Since you’re living in a neighborhood that’s more likely to assess the damage, you’re liable to pay more premium for the insurance.
Living in a neighborhood with a higher crime rate and claims history will cost you a higher insurance premium. Similarly, if you live in a community with lower crime rates, your provider will assume that you’re less likely to claim personal property damage, leading to lower premiums.
Your credit history
Most, if not all, insurance providers will perform a background check on you after you apply for a policy. One thing they’ll look at is your credit score. If it’s good, i.e., 700 or more, you’re likely to pay lower premiums.
If you’re a first-time buyer or simply looking to switch policies, it’s a great time to learn and review what the HO6 insurance policy means. Your insurance will protect you and your property from unforeseen financial losses so you can have peace of mind. With a condo insurance policy, you can better your quality of life while the policy protects you from any mishaps.
Sometimes insurance companies will issue a standard insurance that won’t cover specific perils. Your unique living situations require an insurance expert to make informed decisions. Find an agent near you and start shopping for great condominium insurance policies today!
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Can Townhomes Have Condo Insurance (HO6) Insurance?
Insurance for townhomes is not legally mandated. But if you’re a prudent owner, you’ve shopped around for comprehensive coverage. HOA Insurance covers your exteriors and common areas but not your personal belongings and interiors. If you want a more inclusive policy, you will need separate homeowners insurance coverage.
If your townhouse is located inside a housing community, you should be looking to get condo coverage. Whether you’re renting the space or own the townhouse, your HOA or condo master policy will only cover select perils to common areas of the building. It’s always a good idea to get personal insurance.
Is an HO6 Insurance Policy Tax Deductible?
The short answer is no. The long answer is, it’s complicated.
Most homeowners insurance policies, HO6 insurance included, won’t allow you to deduct tax from its premiums. But you could still qualify for a tax deduction in the following cases:
- You use your condo as a home office
A small portion of your insurance premium can be deducted if you’re using your condominium as an office. You can deduct a portion of your tax based on the square footage of your unit that you dedicate to being your home office.
Upwork reported in 2020 that 36.2 million American jobholders will be working remotely by 2025. And the current pandemic has forced many American workers to operate out of their own homes already. If you’re living in a condo unit that you own, you could potentially deduct a small portion of the tax.
- You rent out your condo
Investing in real estate could qualify you for a tax deduction. Renting out your unit generates income, which qualifies your condo as being used for commercial purposes. Maintaining and operating a rental property can be written off as a business expense, thereby allowing you to get a tax deduction. In addition to condo insurance for your rental property, you should also look into landlord insurance.
HO6 Insurance Policy VS Homeowners Insurance: What is the difference?
The first and most significant difference between these two policies is that one covers a condominium, and the other covers a house. Many insurance buyers mistakenly believe that homeowners insurance will protect a condo.
Homeowners insurance is more expensive than condo insurance because it covers more risks. If you live in a condo, your master policy will cover amenities such as parking, gym, pool, and other structures. But that isn’t the case with homeowners policy. Since you own all the property, it’s up to you to insure everything.
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