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Condo Insurance-Are you really Insured?

Are you properly insured against fire, theft or water damage to your condominium or townhouse? If a disaster strikes, who is going to repair the damage? Will your condo's insurance cover damage inside the condo or is that up to you?

You may need to get what is known as an HO-6 policy. This type of insurance protects you - the owner of the condo or townhouse and makes sure that your home gets returned to its proper condition following a disaster.

When most people first buy a condo or townhouse they call their insurance agent, explain they are purchasing a condominium unit and that they need to provide proof of insurance to their lender. The agent then supplies proof of insurance for the mortgagee in the form of a Certificate of Insurance or some other Proof of Insurance and the transaction is complete. Usually that proof of insurance relates to the condominium association master policy, not to your personal condo unit.

In most cases, however, there is large gap in coverage for the interior of your condo. Most condo association master policies just cover the exteriors and common areas. If you, the condo owner suffer a loss, you most likely will be underinsured - or not insured at all unless you had an HO-6 policy.

In order to fully determine the adequacy of your coverage, you and/or insurance agent need to review the condominium master policy and the condominium governing documents (CC&Rs). It is possible your condominium has "walls-in" coverage on their Master Policy (now required by Fannie Mae). However, this may be a false sense of confidence in the coverage as "walls-in" coverage would likely be limited to replacing the interior fixtures with what was originally installed.

So, if you have a 30 year-old condo that was upgraded recently with granite counters, custom cabinets, marble flooring, dual-paned windows, etc., then you would only be paid to replace the original fixtures - formica counters, green shag carpet, low-grade cabinets and single-paned windows. However, an HO-6 policy with replacement cost coverage would assure you that you have coverage for what you had at the time of loss. Just as important, the HO-6, in Coverage A will probably insure the condominium association master policy deductible if it is assessed to the unit owner.

Even worse would be to discover your condominium association only had a "bare walls" policy. This means that you have absolutely no coverage for anything inside your unit. If you suffer a loss, you would essentially be without coverage unless you also had an HO-6 policy.

Be sure to review your options with your agent.

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