H0-6 Policy – What is it and why do I need one?

Josh Fuhreck – CMCA – Bullseye Property Management

“I pay dues each month. My dues include insurance.”

Many townhome and condo owners mistakenly believe that because the association has insurance on the buildings, there is no need for them to have a separate policy. Unfortunately, that mistake can cost you $10,000 or even more. If you are unable to pay, the association will likely initiate foreclosure against you.

Associations have what is called a master policy. The master policy insures the buildings against losses. But the master policy has high deductibles oftentimes $10,000 or even $25,000. If a loss occurs, and the damage is less than the master policy deductible, there is no coverage under the master policy. Without an HO-6 policy to pay for a loss that is less than the master policy deductible, you are responsible to pay for the loss.

Your association budgets for many things; lawn care, snow removal, insurance, maintenance, etc., but almost none budget to absorb deductibles. Doing so would mean much higher dues than you currently pay. Instead, almost all associations choose to charge the deductible back to the homeowner. nn Here is a real-world example – The water line to your refrigerator bursts while you are gone for the weekend. When you come home, there is substantial water damage to your home. The total to repair your home is $60,000. The association will file a claim against the master policy for the loss. The master policy will pay for the loss less the deductible. With a $10,000 master policy deductible, the insurer will only pay $50,000. The association charges the remaining amount to you. You are left with a bill of $10,000 to pay. Without an HO-6 policy, that money comes out of your pocket.

Did you know? Wind and hail claims are by far the most common form of loss in a townhome association. To minimize losses, most master insurance policies have a separate and higher deductible for wind and hail losses.

Instead of a $10,000 deductible per building, wind and hail deductibles can be up to 5% of the insured cost of your building. If your building contains 8 homes, each costing about $300,000 to rebuild (insured value), and the master policy has a 5% wind and hail deductible, you and your neighbors are each responsible for a deductible of 5% * $300,000 or $15,000/per home. Here again, if you do not have proper HO-6 coverage or $15,000 sitting around to cover the deductible, the association will likely file foreclosure against you.

Did you know the master policy does not cover your belongings either? If a fire burned down your building and you don’t have an HO-6 policy, not only will you be charged your share of the deductible, you will have no insurance to replace any of your belongings.

This information is not meant to scare you. It is meant to educate you and save you from a costly financial mistake. Luckily, the HO-6 policy is the solution. Your H0-6 policy will pay the deductible that is charged back to you (less the HO-6 deductible -typically around $500) and cover your belongings among other things.

The cost of an HO-6 policy is very affordable. If you do not have one or are worried your current coverage is inadequate, please reach out to your agent and ask him/her to work with the association’s agent to review your coverage. As master policy deductibles can change over time, please be sure to have your agent review your coverage every year.