HO6 policies insure individual unit owners. These polices come in many forms and provide various levels of coverage. If you buy only on price and your agent sells you a “cheap” policy, you are going to be sorry when you have a loss.
A must-read article by every condominium owner is 10 Steps to a Well-Designed HO6 Policy. The article is written for insurance agents but educated policyholder should be meeting with and discussing these coverages with their agents.
Here are the ten recommended steps:
1. Request a copy of the association “Declaration” document. Make a list of building items not covered by the master policy (e.g., carpet, hardwood floors, tile floors, kitchen cabinets, plumbing and electrical fixtures, built-in appliances, unit owner improvements, etc.). (Be sure that the requirements are permitted by your particular state law.)
2. Have your client estimate the replacement cost of each of the structural items that are his or her responsibility. I find it easier and more accurate to write out a list of each type of item and have the client estimate the replacement cost of each category. Total the values. (Don’t forget the labor costs in your estimate.) To be safe, I add an additional 20 percent to the total to allow for estimating errors. That total should be the limit for Coverage A building coverage on your HO 6 policy.
3. Add “special perils” coverage to Coverage A, changing perils covered from “named perils” to “all risk” unless excluded. This is important for three reasons: it covers more losses (e.g., water damage to walls and ceiling from roof leaks), it improves coverage for losses subject to the master policy deductible, and it changes the perils covered by loss assessment coverage from named to special.
4. Add special perils contents coverage (e.g., roof leaks, paint spills, etc.).
5. Increase the loss assessment coverage limits to $50,000.
6. Buy deductible assessment coverage. Find out the current master policy deductible as well as the maximum deductible authorized in the declaration. Choose the higher (so that your client is protected when the association decides to raise the deductible to the next level). If the insurance company you are using does not offer that high of a deductible assessment coverage limit, change insurance companies.
7. Add sewer backup coverage to provide coverage for the direct damage to the unit or contents from sewer backup and sump pump failure and to broaden loss assessment coverage to include assessments for sewer backup (i.e., loss assessment coverage only covers assessments for perils covered by the HO 6 policy).
8. Assess the need for flood or earthquake coverage. If there is an exposure to earthquake, remember to add earthquake loss assessment coverage, which normally is not included in general assessment coverage. If there is a flood exposure, buy flood insurance for an amount high enough to cover your interior structural insurance obligations. Lobby your association into purchasing flood insurance on the complex. Unfortunately, if it fails to do so, there is no flood insurance deductible assessment coverage available.
9. Buy adequate and consistent liability coverage (i.e., $500,000) in limits equal to your client’s other personal liability coverages or in limits high enough to satisfy the umbrella underlying insurance requirements.
10. Buy an umbrella policy. Be sure it includes coverage for association volunteer activities including nonprofit directors and officers (D&O) liability coverage in case your client ever serves on the board. Caution: Because an umbrella policy only covers claims arising out of bodily injury, property damage, and personal injury, this umbrella coverage clearly doesn’t replace the need for that board to carry D&O coverage.
Most condominium policyholders are bombarded by mail fliers and other advertisements promising to save on insurance. Buying cheap insurance can lead to financial disaster when a claim or loss occurs. Run from agents promising to sell “cheap insurance” because that advice is wrong and misleading.
Thought For The Day
Price is what you pay. Value is what you get.