When you buy a condo, someone usually tells you early in the process that the HOA has a master insurance policy in place. That's true. And it's easy to walk away from that conversation thinking you're covered. Most buyers do.
The problem is that the master policy conversation usually happens in the context of what the mortgage lender requires, not what you actually need to protect your unit and your financial well-being. Those are two different things. This article covers the difference.
When you buy a condo unit, you are buying a piece of a larger structure that you share with other owners. There are common areas, shared walls, shared utilities, and an exterior that belongs to everyone collectively. The HOA's master insurance policy exists to cover those shared elements.
At a minimum, a master policy will cover the exterior of the building and common areas for standard perils like fire. It typically provides liability coverage for the premises, meaning if someone is injured in a common area, the master policy responds. What it does for the interior of your individual unit depends entirely on how the policy is structured.
Master policies generally fall into two categories: all-in and walls-in. The difference between them determines how much of your unit's interior is covered by the HOA's policy and how much falls to you.
An all-in master policy covers the interior of the unit, including structural elements, finishes, and improvements like cabinets, countertops, and flooring. Personal property, meaning furniture, clothing, and belongings, is not included. But the physical unit itself is largely the HOA's responsibility under an all-in policy.
A walls-in policy covers only to the studs, subfloor, and rafters. Everything on the interior of those structural elements, including drywall, flooring, cabinets, countertops, and fixtures, is the unit owner's responsibility. If there is a major loss like a fire, the gap between a walls-in policy and an all-in policy can represent tens of thousands of dollars.
There are variations that fall between these two ends of the spectrum. The only way to know where your HOA's master policy sits is to read the condo association documents, which we will get to shortly.
An HO6 is the individual condo unit owner's insurance policy. Regardless of whether the master policy is all-in or walls-in, there are two things your HO6 covers that the master policy will never cover: your personal property and your personal liability.
Personal property is everything you own inside the unit, from furniture and clothing to electronics, cookware, and valuables. None of that is the HOA's responsibility, and none of it is covered by the master policy.
Personal liability protects your financial well-being if someone is injured inside your unit and holds you responsible. A guest who trips and falls, a contractor who is injured while doing work in your unit. If a lawsuit follows, your personal liability coverage is what stands between you and paying out of pocket. The master policy's liability coverage applies to the premises as a whole, not to what happens inside your individual unit.
The simplest way to think about how an HO6 and a master policy work together is this: your HO6 picks up what the master policy doesn't cover, subject to your deductible and the limits you have in place. Getting those limits right, and understanding where one policy's responsibility ends and the other's begins, is exactly what a condo insurance review is designed to do. A misalignment between your HO6 and the master policy is the most common gap we find when reviewing existing condo coverage.
This is the piece of condo insurance that surprises people most, because it is not intuitive and it is rarely explained during the home buying process.
Most condo association documents include a provision that allows the HOA board to issue a loss assessment to all unit owners. This happens when the HOA experiences a loss that either isn't covered by the master policy or exceeds the master policy's limits. When that happens, every unit owner is billed for their share of the shortfall, and they are responsible for paying it out of pocket unless they have loss assessment coverage on their HO6.
Loss assessment coverage is an endorsement you add to your HO6 policy. But there is an important catch: the peril that caused the loss has to be a covered peril on your own policy in order to access the loss assessment coverage. If the HOA's loss was caused by a water backup event and your HO6 doesn't have water backup coverage, your loss assessment coverage won't respond.
This is why, when we set up condo policies, we try to add endorsements for as many loss types as possible. The goal is to make sure loss assessment coverage is as broad as it can be. Nearly every condo unit owner should have it.
If your unit is damaged and you cannot live there while repairs are made, the master policy provides nothing for you. The loss of use coverage in your HO6 is what covers temporary housing and related expenses during that period. The limits for loss of use on a condo policy can be modest, so it is worth reviewing what you have in place and whether it is sufficient for your situation.
The certificate of insurance, which you can request from the HOA or ask the seller to provide, will show that coverage is in place. The most important number on that certificate is the master policy deductible. That figure tells you how much exposure you have before the master policy kicks in on a shared loss, which directly informs how your HO6 needs to be structured.
However, the certificate of insurance alone won't always tell you whether the policy is all-in or walls-in. For that, you need to read the condo association bylaws. The bylaws define the unit boundaries, meaning what you actually own and are financially responsible for in the event of a loss, and they outline the insurance requirements the board is obligated to carry. Any amendments to the bylaws may update those requirements, so both the bylaws and their amendments are worth reviewing.
When we work with a condo buyer or owner, we ask for three documents: the certificate of insurance, the bylaws, and the amendments. Together, those documents give us the full picture we need to structure the HO6 correctly.
A standard HO6 policy is a starting point, not a complete solution. For nearly every condo unit owner, there are optional coverages that need to be added to fill the real gaps.
Water backup coverage is one. Replacement cost coverage for personal property is another, since the standard policy pays actual cash value, which accounts for depreciation and results in a lower payout at claim time. Loss assessment coverage, as discussed above, should be on every condo policy. And depending on what you own, scheduling specific valuable items may also be necessary.
The coverage A limit on your HO6, which covers the interior of the unit, also needs to be calibrated to your specific situation. Whether the master policy is all-in or walls-in, and what the master policy deductible is, both factor into how much coverage A your policy needs to carry.
For most condo unit owners, the premium is lower than a comparable single-family home insurance policy. That is primarily because the dwelling coverage limits are substantially lower. You are not insuring the full replacement cost of a standalone structure. For most condos, you are insuring the interior and your personal property, with the master policy handling the rest.
The exception is a unit owner with significant personal property or high-value belongings that need to be properly covered. In those cases, the cost can increase, but the coverage is there for a reason.
Condo insurance is more complex than most buyers expect. The shared nature of the structure, the interaction between the master policy and the HO6, and the nuances around loss assessment coverage all require more thought than a standard homeowners policy. Getting it right means understanding what the HOA's master policy actually covers for your specific association, and building your HO6 to fill the gaps accurately.
If you own a condo in Massachusetts or are in the process of buying one, we would be glad to walk through your coverage with you. Learn more about condo insurance at Oak Grove Insurance or reach out directly and we will get started.
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