Your offer was accepted on a condo and the mortgage company is asking for an insurance binder for something called an H06 policy or a Unit Owners Policy, they may be using terms like “walls in” or “studs in” coverage. You call your insurance agent and now come the questions:
1. How much coverage do you need for your contents?
2. What are you, the unit owner, responsible for in the event of a loss?
The first question is not that difficult; figure out how much it would cost you to buy all your “stuff” if the condo burned to the ground. You’ll need to think about things like furniture, clothing, electronics, toys, kitchen stuff. One way to think about it is that if you turn the condo upside down and shake it, everything that falls out needs to be covered by your unit owner’s policy. You can take an inventory room by room or assign a value to what you think the contents in each room would cost to replace.
The second question is a little more involved: What are you, the unit owner, responsible for in the event of a loss?
Condo Associations have Bylaws or Association Agreements that describe the boundaries between the Common Areas (owned by the Association) and the Units (owned by the unit owners) and who is responsible for what in the event of a loss. Some condo associations state that the boundaries between the common areas and units are from the interior surface of the studs in or “studs in”, others say it’s from the surface plane of the interior walls “walls in”. In a studs in situation, the Association Master policy is responsible to rebuild/repair up to the surface of the stud facing the interior of the unit and the unit owner is responsible for interior walls, flooring, fixtures, cabinetry, major appliances, such as those used for refrigerating, ventilating, cooking, dishwashing, laundering, security or housekeeping, etc. In a walls in scenario the Association Master Policy is also responsible for the interior walls, flooring, fixtures, cabinetry, major appliances etc.
Then there are improvements and betterments to consider: If a unit owner upgrades to high end cabinetry, flooring or puts in walls or partitions to create extra rooms, those would be considered improvements & betterments. Over time and multiple owners, units can be upgraded well beyond the original construction of the unit. Some Associations cover walls in including unit owner improvements and betterments, others do not include Improvements and betterments.
The good news is that many Association Master Policies now include “All In” Endorsements which states that the master policy will cover the interior walls, flooring, fixtures, cabinetry, major appliances and improvements and betterments even if the Association Agreement states that the Unit Owner is responsible from the studs in (not every All-In Endorsement also includes Improvements and Betterments so you need to check that). This makes life easy since the Unit Owner is now generally only responsible for the portion of the Master Policy Deductible if there’s damage to their unit. As long as you purchase enough Dwelling coverage on your unit owner policy to cover the Master Policy Deductible, you should be all set if there’s a loss to your unit.
If your Association Master Policy does not include “All In” coverage and you are responsible for the interior walls, flooring, fixtures, major appliances and installed cabinetry in the event of a loss, your insurance agent can run a Dwelling Replacement Cost Estimator to give you an idea of how much Dwelling coverage to purchase.
You will also want to make sure that you have at least $500,000 in Personal Liability and $50,000 Loss Assessment coverage on your H06 Unit Owners policy. Personal Liability will cover you if you are sued for Bodily Injury if someone gets injured on your property. The Association Master Policy will provide Liability coverage for the Association if someone gets injured in the Common Areas.
Loss Assessment will provide coverage for your share of a loss assessment charged by the Association when that assessment is made as a result of a direct loss to the property, owned by all members collectively (i.e. Common Area), caused by a peril insured under the Dwelling Coverage portion of the Unit Owner policy. So if there’s a loss to the common area that involves a large deductible that isn’t covered under the Dwelling coverage of your Unit Owner policy and you are assessed for a portion of the master association policy deductible, you will have coverage under the Loss Assessment section of your Unit Owner policy.