HO-6 Basics By Dash Leander, Farmers Insurance
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he HO-6 policy, also known as the condominium/ townhome unit owner’s policy, is the crucial coverage piece that supplements the overarching master insurance policy for the condo or townhome association. Knowing what is and what is not covered in the HO-6, and how to pick your coverage limits goes a long way in making sure there are no gaps in coverage that could result in nasty and sometimes catastrophic out-of-pocket costs for the unit owner. Half of the battle when determining the appropriate coverage limits for the underlying HO-6 policy is knowing how the condo association’s policy works. Generally speaking, the Master Policy will pay to rebuild the condo/townhome units to their “bare walls” state. The Master Policy will also cover damage to and the cost to rebuild all exterior features of the condo/townhome unit including framing, siding, roofing and other exterior features like decks. The catch here is that the Master Policies will have a deductible before any coverage applies, and it’s commonly quite high, sometimes up to $10,000 or even 1% of the total condo/townhome association building coverage. When building damage doesn’t reach the Master Deductible, the unit owner is on the hook for repairs. This is where coverage from the HO-6 policy kicks in. To start, the HO-6 offers building coverage for your condo/ townhome unit up to a specified limit on your policy. Building coverage in this case includes but is not limited to: • All electrical finish including light fixtures, outlet, and switchplate covers. • All floor coverings, including but not limited to carpet, wood, vinyl, tile, and underlayment.
When trying to determine the appropriate building coverage limit for the HO-6, the limit should be at least as high as the Master Policy’s deductible and ideally equal to the approximate cost of the aforementioned finishings. A decent rule of thumb is to carry between 10-20% of the unit’s value in building coverage. The next piece of the HO-6 coverage is the personal property. This limit should represent the approximate cost of replacing everything in the unit that is not permanently installed. If one were to take the unit and shake it upside down, everything that falls out should be accounted for in this personal property limit, also known as “coverage C”. Arguably the most important coverage part of the HO-6 is the liability limit. Like most other home policy liability coverage, this limit allows the unit owner to be represented in the event of legal action against them arising from events in the insured unit, even if such claims are frivolous. It’s hard to argue that one can have “too much” liability coverage in today’s litigious society. When the difference between $300,000 in coverage and $1 million in coverage is often only several dollars per year, the decision to take higher liability coverages for most insurance professionals is a no brainer. Closely related to the liability concern is a coverage part available on the HO-6 called Loss Assessment. When a unit owner opts in to a homeowner’s association with their condo or townhome purchase, they are also opting in to a shared community responsibility if something happens on the grounds, even the public areas. If an association assesses a huge loss on its unit owners from say, a huge liability claim from the public area pool, the loss assessment coverage of the underlying HO-6 can help cover this loss. Similar to the liability section, this coverage is extremely inexpensive and should be set as high as possible.
• All cabinetry, book cases, shelving, countertops, and vanities • All plumbing finish including toilets, sinks, bathtubs, showers, and all surrounds. • All wall/ceiling coverings including wallpaper, wainscoting, paneling, texture, paint and decorative coverings. • All appliances including ovens, ranges, range hoods, microwaves, refrigerators, dishwashers, water purification systems (including softeners), washers, dryers, garbage disposals and trash compactors. • Furnace in the unit, A/C units if they service only the specific unit (including their outside condenser unit), baseboard heaters, wall heaters and hot water tanks in the specific unit. 24
Minnesota Communit y Living
This is meant to be a summary of the highlights of an HO-6 policy. Exceptions apply and every scenario is different, so be sure to consult a professional insurance agent.