Is Your Condo Underinsured? 5 Signs Your HO-6 Policy Has Dangerous Gaps
Owning a condo offers a unique lifestyle, but it also creates a unique set of insurance risks. Many owners fall into the trap of "set it and forget it," assuming that because they have a policy, they are fully protected. However, as property values rise and construction costs fluctuate, a policy that was adequate a few years ago might leave you vulnerable today.
Underinsurance is a silent threat. You often don't realize the gap exists until you are filing a claim, only to discover that your coverage barely scratches the surface of the actual costs. Here are five warning signs that your HO-6 insurance policy might be leaving you exposed.
1. You Haven't Updated Your Policy After Renovations
Did you replace the builder-grade laminate with granite countertops? Did you upgrade to custom hardwood floors or install a luxury spa shower?
Most HOA master policies only cover the unit's "original specifications." If you spend $30,000 on kitchen upgrades and a kitchen fire occurs, a standard policy might only pay to restore the kitchen to its original, cheaper state. If your dwelling coverage (also known as "additions and alterations" coverage) hasn't been adjusted to reflect your home's current finish level, you are essentially self-insuring those upgrades.
2. Your Personal Property Limit Is Based on a Guess
Most people vastly underestimate the value of their belongings. If you walked through your condo and tallied up every piece of furniture, every electronic device, your wardrobe, kitchen appliances, and linens, the total would likely be much higher than you think.
If your policy has a flat $20,000 limit for personal property because that "seemed like enough" at the time, you might find yourself unable to replace your lifestyle after a total loss. Furthermore, ensure you have Replacement Cost Value (RCV) rather than Actual Cash Value (ACV). RCV pays for a brand-new version of your items, whereas ACV only pays the depreciated value of your used goods.
3. You Have a "Standard" $1,000 Loss Assessment Limit
As discussed in previous guides, loss assessment coverage is what protects you when the HOA passes a building-wide bill down to unit owners. Many basic policies include a default limit of $1,000.
In an era of rising construction costs and high insurance deductibles for building associations, a $1,000 limit is almost certainly insufficient. If your HOA has a $50,000 deductible for wind damage and divides that among 20 owners, you owe $2,500. If your policy only covers $1,000, that remaining $1,500 comes out of your pocket. Checking your HOA's master policy deductible is the only way to know if your limit is high enough.
4. You Lack "Sewer Backup" or "Sump Pump" Riders
Standard condo policies generally cover water damage from a burst pipe, but they often exclude damage caused by water backing up through sewers or drains. In a multi-unit building, a blockage several floors down can cause a backup in your unit, even if you did nothing wrong.
Without a specific water backup endorsement, you could be left paying for the cleanup and restoration of your floors and cabinets yourself. This is one of the most common "hidden" gaps in condo insurance.
5. Your Liability Limits Are Stuck in the Past
If you have a $100,000 liability limit, you might be underinsured. Liability insurance covers you if someone is injured in your home or if you accidentally cause damage to other units (like leaving a faucet running and flooding the neighbor below).
In today's litigious environment, medical bills and legal fees can easily exceed $100,000. If your assets—including your savings and the equity in your condo—exceed your liability limit, you are at risk. Increasing your liability to $300,000 or $500,000 is usually one of the least expensive upgrades you can make to your condominium insurance.
How to Conduct a Coverage Audit
If any of these signs sound familiar, it’s time for a quick review. You don't need to be an insurance expert to protect yourself; you just need to be proactive.
Create a Digital Inventory: Take a video of every room in your condo, opening closets and drawers. Store this in the cloud. This provides proof of what you own and helps you estimate its value.
Compare the "Master Policy" to Your "HO-6": Make sure you know exactly where the building's coverage ends. If the master policy is "bare walls," ensure your dwelling coverage is high enough to rebuild the interior.
Ask About Endorsements: Talk to your agent specifically about "Scheduled Personal Property" for high-value items like jewelry or art, which often have low sub-limits on standard policies.
The Bottom Line on Condo Security
Your condo is likely one of your largest financial assets. Having "some" insurance isn't the same as having "enough" insurance. By identifying and closing these five common gaps, you can ensure that a bad day at your condo doesn't turn into a lifetime of financial recovery.