Buying a condo is different from buying a standalone home. Especially when it comes to insurance coverage. Buying a condo means you are becoming a partner with other owners. Plus, the common areas are insured by one or more master insurance policies. Most condo master policies do not cover the interior of the condo. Tiis is why condo “walls in” policies, also known as an H06 policy, exist. In the event of damage or a loss to the condo interior, this form of condo insurance covers the unit owner. A key point to remember when a mortgage is involved, the lender requires a certain level of H06 policy coverage.
What is an H06 Policy?Master condo policies cover the buildings, common grounds, and even liability in case someone is hurt on the premises. But, many master policies stop their coverage at the interior walls of each condo unit. That means the unit owner is on their own when it comes to the interior and its contents. That is where an H06 policy steps in. An H06 or walls in policy is purchased by the unit owner through an insurance agency and for the most part, the owner decides on the level of coverage. One area of importance to remember is that these condo policies may not cover all perils. For instance, coverage for other areas such as flood or wind/hail damage may require an additional policy or riders.
Does the Condo Master Insurance Policy Ever Cover the Interior?Yes, but this is not common. When considering a condo purchase, it is key to get a copy of the master policies. Plus, make sure to have a thorough discussion with the master policy insurance agent. It is key for a potential condo owner to understand the coverages and exclusions. At this time, it will be known if the master policy covers the condo interior and the unit owner’s personal contents. Keep in mind that if the master policy does cover the walls in, pay attention to the policy deductible. It may be a very large deductible. In this case, ask your insurance agent if supplemental coverage is allowed.
How Much H06 Coverage Does My Mortgage Lender Require?If a buyer pays cash for the condo, then the unit owner may choose any coverage they choose. Even waive the policy altogether. Yet when a mortgage is involved, there are lender requirements. As a general rule of thumb, lenders will require coverage equal to 20% of the condo unit value. For instance if the condo is purchased for $200,000, the H06 condo policy must have at least $50,000 coverage. Furthermore, if your mortgage requires escrows for taxes and insurance, this insurance will be in the escrows. The master policy is typically included in a unit owner’s HOA dues. Although, condominium complexes with only a few units may handle this differently.
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