Insurance: boring, but important

Insurance certainly isn’t a sexy topic. It doesn’t fall under the category of “real estate porn,” nor does it fall under the category of “well, it was fun to spend THAT money.” Nope, it’s not fun. But as anyone who has been in a car accident, had a house fire, been burglarized, or had someone slip and fall on their property knows, it’s really, really important.

There are different kinds of insurance needed for single-family homes and condominiums, and yet another type for unit buildings.

Today we’ll focus on the insurance required for condo units (this is different from what’s required for TICs; stay tuned for that entry in the future). In years past, lenders that were making loans on condo units asked for a copy of the homeowner’s association master insurance policy, and that was it. They usually wanted the master policy to have liability coverage for up to $1 million, so if, for example, someone was injured on HOA property the master policy would cover any damages. Today, most lenders ask for liability coverage of $2 million.

The HOA policy covers the rebuilding of the “shell” of the building — the framing, exterior walls, roof, foundation, windows (usually), unfinished floors, and unfinished walls. So what happens, you ask, when your condo building burns down and you need to rebuild the whole thing, including your cabinets, light fixtures, bathtubs, etc.?

Enter what’s called the HO-6 policy, which is your best friend if you have (and who doesn’t?) floor coverings, plumbing fixtures, appliances, and other stuff not covered by the HOA policy and there’s major damage to your building. The HO-6 policy hasn’t been required by lenders for very long, just a couple of years, but it definitely makes sense to have one even if you buy your place with cash. Otherwise, you would be on the hook for rebuilding your condo from the unfinished walls in — and replacing all of your personal property as well — if your place suffers major damage.

If you’re in the market for a condo plan to shop for an HO-6 policy while you’re in escrow. And here’s to hoping you never need to use it.