Condo Master Insurance Policy vs HO-6

A condo master insurance policy is essential in maintaining long-term financial stability. Still, even with a master policy, unit owners must obtain their own insurance, as the master policy does not always cover interiors. Understanding what policy their condo association has will help them get their own.

What is a Condo Master Insurance Policy?

A condo association master insurance policy is a type of insurance that covers the shared elements of a condominium development. These shared elements include roofs, elevators, lobbies, hallways, and common amenities. A master policy offers protection from both property damage and liability.

In Illinois, condo HOA insurance is mandatory. According to 765 ILCS 605/12, COAs must carry a minimum of property insurance, general liability insurance, fidelity insurance, and directors & officers insurance. These are the essential policies that keep an association in good financial condition.

In addition to state laws, COA boards should also check their governing documents for guidelines and requirements. The CC&Rs and bylaws may have extra stipulations when it comes to minimum coverages or policies.

What is an HO-6?

A condo master insurance policy differs from an HO-6 policy, which applies specifically to unit owners. An HO-6 policy is a type of insurance that covers personal belongings, interior damagem and liability that occurs inside a unit. Whereas HO-6 covers interior units, most condo master policies do not.

What Does Condo Master Insurance Cover?

The exact coverage will depend on the type of policy and inclusions the association obtains. That said, condo master insurance coverage typically includes:

Property Damage. Most policies cover condo-owned properties, including building exteriors, shared structures, and common areas.
Liability Coverage. A master insurance policy usually covers the legal fees and damages for injuries or accidents that take place on condo property.
D&O Coverage. Some policies come with directors & officers insurance, which protects volunteers from lawsuits related to their service on the board.
Loss of Income Coverage. Some associations earn income from common areas. When these areas become temporarily unusable, insurance should cover the loss.
Fidelity Bond. Also known as crime insurance, some policies come with protection against financial losses that stem from fraud, theft, or other types of financial crimes.

What Does Master Condo Insurance Not Cover?

Condo association insurance is a powerful form of defense against financial loss, but it does not cover everything. Exclusions do exist, and board members must be aware of what these are to better protect their association.

It is important to remember that what’s not covered will depend on the provider and type of policy. That said, a condo master hazard insurance policy typically doesn’t include:

Unit Owners’ Personal Items. Unit owners must obtain their own separate policies for personal belongings, including furniture, electronics, and other valuables. Condo insurance does not cover these.
Unit Interior Damage. Most condo master policies only cover the exterior of the building and shared elements. This means unit interiors are not covered, and owners must take out their own HO-6 policy for that.
Renovations or Improvements. Unit owners who wish to modify or upgrade their units must turn to their own providers or cover the relevant costs out of their own pockets.
Flood Damage. Many policies don’t cover flooding, and associations will need a separate policy or rider for that.
Earthquake Coverage. As with flood insurance, condo associations must obtain a different policy for damages resulting from earthquakes.
Pests. A condo master insurance policy generally does not cover damages arising from pests such as rodents, termites, or ants.

Types of Condo Master Insurance Policy

A master policy for a condo association comes in three different types: bare walls-in, all-inclusive, and single entity coverage. Let’s break these down below.

Bare Walls-In

This policy is the most basic and least inclusive. It only offers coverage for the exterior structure of the building, nothing for interiors. Unit owners must take out their own HO-6 policies to cover the interiors of their units and any personal items inside.

Single Entity Coverage

Single entity policies cover the exterior structure of the condominium as well as the appliances and fixtures inside, but it does not cover the personal items of the unit owner. It also does not cover any upgrades or improvements the owner may have made to their unit.

All-Inclusive

As the name suggests, this is the most comprehensive policy, as it covers the exterior structure of the complex as well as some interior elements. When claimed, the policy will revert the unit back to the state it was in prior to the damage. This includes appliances, fixtures, and any upgrades that the owner made to the unit.

How Much is a Condo Master Insurance Policy?

The cost of a condo master policy typically depends on several factors. Age and condition affect it foremost, as the older or more deteriorated the building, the higher the premium. This is because providers take on more risk, as there is a higher likelihood of property damage.

The location of the association can also influence insurance costs, as wealthier areas tend to command a higher price. If the condo is located in a high-risk area, premiums also go up. Apart from that, the extent of coverage and the number of units can also affect the premium.

That said, a condo master insurance policy averages about $1,000 to $5,000 per year per building. Compared to single-family HOA insurance, condo insurance costs more because there are more components insured.

Board members should make sure to shop around and negotiate with providers before making a decision. Settling for the first deal may put the association at a disadvantage. It is also a good idea to have a lawyer or HOA manager look over the policy for a more informed recommendation.

Who Pays for a Condo Master Insurance Policy?

The condo association pays for the premium directly, but unit owners do so indirectly by contributing monthly dues. Unit owners are obligated to pay dues and assessments to the association. The COA board then allocates a portion of these dues, through the budget, to cover the cost of the master policy.

Unit owners have shared responsibility over common elements. Because of this, they must pay for the condo master policy in addition to the HO-6 coverage for their individual units.

In the End

A condo master insurance policy is not the same as an HO-6 policy. The former covers association-owned property, while the latter covers individual units and personal property. Unit owners must understand what their master policy entails so they can choose which HO-6 coverage works best for them.

Forth Group provides HOA financial management services to communities in Chicago and the surrounding areas. Call us today at (312) 379-0400 or contact us online to get started!

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