Maui Condo Insurance Explained

The HO6 Insurance Policy

Interpreting insurance coverage can be complex, and condo insurance is no exception.  There seem to be many “grey zones” and “it depends” scenarios left for insurance experts and legal professionals to interpret and decide upon. Yet, with a little knowledge, you can and should make these important decisions with the assistance of a trusted insurance broker.

This post presents the nuts and bolts of the HO6 insurance policy, which is the typical insurance policy purchased by condo owners.  It is important to note that insurance regulations differ by location. The information provided here applies to Oahu and may not apply in the same way to a condo located elsewhere in the US.

Every condo association is required by law to carry a master insurance policy, including fire, flood, and hurricane coverage, the building’s replacement cost, some liability, and more. Depending on the condo’s location, the only exception may be the mandatory flood insurance coverage requirement.

If your condo sustains damages, the association’s insurance policy will typically cover the cost to bring your unit back to its original condition (when first built) minus a deductible, which the owner is responsible for paying. The deductible is likely covered in a comprehensive HO6 policy.

As an individual condo owner, you may be required to carry an HO6 insurance policy by contract, not by law. ‘By contract’ means your condo association may require you to take out an HO6 policy – most do require this.  The condo association typically requires that the owner’s HO6 policy covers the deductible on the association’s master insurance policy, which for many associations is somewhere in the $5,000 to $50,000 range.

Additionally, if you have a mortgage on the property, the mortgagee (lender) will almost always require the borrower to secure an HO6 policy.  The lender may also have certain requirements as to what the HO6 policy coverage should include.

 

An HO6 policy typically covers several items in addition to the association’s insurance deductible to include:  

Dwelling Coverage

Consider dwelling items that stay attached if you turn your unit upside down, such as carpets, wood flooring, drapes, cabinets, etc.

Typical Coverage: $25,000.

If you have upgrades – maybe an expensive $100,000 Italian designer kitchen – you probably want to consider increasing the dwelling coverage.

A standard policy typically has exclusions from coverage, and these exclusions include but are not limited to, hurricanes, floods, and earthquakes.

Personal Property Coverage

Consider personal property as items that fall out if your unit is turned upside down, such as sofas, chairs, tables, TVs, computers, fridges, clothes, dishes, etc.

Typical Coverage: $35,000.

If you have purchased $200,000 worth of furniture, you should probably consider increasing your personal property coverage.

A standard policy typically has exclusions from coverage, and these exclusions include but are not limited to, hurricanes, floods, and earthquakes.

Loss of Use Coverage

If your unit is damaged and inhabitable while being repaired, HO6 insurance will pay for another rental until your condo is repaired and you are able to live in it again.

Typical Coverage: $14,000. The default is commonly 40% of personal property coverage, but it can be increased.

Personal Liability Coverage

A major purpose of personal liability coverage is to act as a layer of protection for you and covered household members against negligent bodily injury to a visitor in your unit (does not cover if a tenant gets injured) and negligent damage that your unit may cause to another unit. Negligence is the keyword, instead of doing something intentionally or not being at fault.

Typical Coverage: $500,000 to $1,000,000.

If you want liability coverage off-premise—outside your unit—such as the common areas of your condo (for example, the gym in the condo) or away from your home (for example, playing golf), then you need to make sure you add an extension of coverage to your insurance policy. Many insurance agents will add this extension by default, but it may be wise to verify that you are covered off-premise.

Adding a separate Umbrella or Excess Liability insurance policy is also possible, increasing your personal liability coverage by several million dollars. An Umbrella Policy is commonly purchased if you have other insurance (for example, auto insurance) and may cover all your policies. An Excess Liability policy is commonly purchased if you don’t have other insurance and applies to one specific policy, in this case, your HO6 policy.

Medical Pay Coverage

Small injury coverage for negligent injury to others in your unit – meant for small claims.

Typical Coverage: $5,000. This amount cannot be increased.

$5,000 is Hawaii’s tort threshold amount, which means medical bills must reach $5,000 before someone can sue for personal injury. A claim above $5,000 will typically trigger your personal liability policy to kick in.

Loss Assessment Coverage

Protection should the condo association assess your unit for damages. For instance, someone visits your condo building, slips in the lobby, sustains an injury, sues the condo association, and wins a $1,800,000 settlement. If the condo association’s liability coverage is up to $1,000,000, then, for the balance of $800,000, the association may decide to assess each unit owner to pay their proportionate interest to settle instead of draining the association’s reserves. Default coverage: $5,000. This amount can typically be increased.

Hurricane

Typically, it is not included in a standard HO6 policy, but it can be added for an extra cost. Most condo owners do not add hurricane coverage to their HO6 policy, however, this does not mean you should not include it – everyone has their own risk tolerance.

If a hurricane damages your condo’s windows and some of your furniture and flooring are damaged, the association’s hurricane policy may cover repairing or replacing the damaged windows. However, your personal property and dwelling coverage will likely not cover the additional damages unless hurricane coverage is specifically listed on your HO6 policy. If the damage was caused by rain after a hurricane had left your building, if the hurricane is still in the area, or if there still is a hurricane watch, it may still require you to carry hurricane insurance to be protected. However, at this point, it gets very technical, and as always, an insurance professional should confirm any details on protection and coverage.

Earthquake

A typical HO6 policy doesn't cover it, but you can purchase coverage. 

Think of HO6 insurance as more of a catastrophic type of insurance, and normally not an insurance someone would use to claim a few hundred dollars, which may be common practice in some countries. You can certainly file a claim for a few hundred dollars. We are not telling you otherwise, but it may increase the chance your insurance premium increases or the carrier outright denies you coverage in the future. As always, consult with an insurance specialist before making decisions.

Deductible

The HO6 policy typically has a $500 deductible. The deductible can typically be increased or decreased – the $0 to $2,000 range is most common.

Who is Responsible For Paying for Damages?

It often depends, as there are endless numbers of possible scenarios. Unfortunately, there are no clear-cut answers in many cases, so the insurance companies must work out settlement matters.

If a unit has expensive furniture damage due to a water leak from a unit above, who is responsible for paying to replace the furniture? The association’s policy will only cover costs to bring a unit back to its original condition when built, so someone else will have to pay to replace that expensive furniture. Hopefully, the owner of the damaged furniture had sufficient personal property insurance coverage included in their HO6 policy that covers the personal property loss. Will their insurance company try to get money from the insurance company covering the condo where the leak came from? This may depend on the cause of the water leak. What if the owner of the unit where the water leak came from has a liability coverage that is less than the cost of the damaged furniture? I don’t know, and it is a rather extreme scenario, as most owners will have an HO6 policy with at least $500,000 in liability coverage, but nonetheless, it is interesting to consider.

Steps to Take Once Damage Occurs

As an affected party, these are the steps you should take:

Step 1: Mitigate any further loss & damage.

Example: If water keeps running and you can’t stop it, call security in your building, a plumber, a handyman, a contractor, or another subject matter expert to help stop the water from running and mitigate any other matters that require immediate attention.

Step 2: Take several photos showing the damage and note the time of the damage (photos taken with a smartphone are normally time-stamped).

Step 3: Contact your insurance agent, and the agent will advise you on what steps to take next.

The agent can normally introduce water restoration companies and other subject matter experts. Ideally, you should contact your insurance agent before hiring contractors, plumbers, etc. However, as described in Step 1, mitigating damages is the top priority.

The insurance agent will initiate the claims process and put you in touch with an adjuster working at the insurance firm. The adjuster will come to your unit, review the damage, take photos, and often give you an idea of the amount you can expect to be compensated. If applicable, an adjuster from the insurance company covering the party where the issue came from will also inspect the damages, and the adjusters will work out a settlement between the two insurance companies.

Final Thoughts

Unlike life itself, condo living comes with risk, and each of us has to determine our risk vs cost tolerance. Water damage is the most common reason for a claim, but personal liability is likely the one feared the most. Is a $500,000 personal liability insurance policy sufficient, or would $10,000,000 be more comforting despite the increased cost? Irrespective of your risk vs cost tolerance and your condo association’s policy, we encourage you to carry an HO6 insurance policy.