Your lender will most likely require you to insure your unit, and show proof of coverage at time of closing.
When you own condominium property, you individually own everything inside of the walls of your unit. You share an undivided interest with other condominium owners on anything outside of the walls of your unit. Because of the nature of this dual ownership concept, insurance requirements are different than those for a single family home. Your lender will most likely require you to insure your unit, and show proof of coverage at time of closing. Remember that your condominium association will ordinarily ensure everything outside of your unit.
This coverage is much like homeowners insurance, but it’s tailored for condominium property. One way or another, it’s going to be paid for by the unit’s owner. HO-6 comes in two categories. Those are known as “bare walls-in” and comprehensive “all-in.”
“Bare walls-in” coverage
This is the minimum coverage that’s usually required by lenders. Under this type of coverage, you as the condominium owner are responsible for ensuring the unit that you exclusively own, use and enjoy. Your lender isn’t going to require you to insure the condo for its full appraised value because your association should have it’s master policy insuring the exterior of the building. If a lender is going to require minimum “bare walls-in” coverage, the minimum amount is going to be at least 20 percent of the value of the condo. The higher that your coverage is, the less potential personal exposure you’ll have.
“All-in” is short for all inclusive condo insurance coverage. Your condo association’s master policy covers all of the real estate, including fixtures inside your unit, and improvements that you as an owner have made. It usually operates as replacement coverage to return your unit to the condition it was in before it was damaged. Since “all-in” doesn’t cover your personal property, it’s highly recommended that you obtain your own coverage for that purpose.
Standard HO-6 coverage should also cover risks like explosion, fire, a tornado or storm damage, substitute living arrangements, theft or liability of you or a member of your household. It might also cover theft or liability off of the premises, depending on your specific policy language. If your lender is requiring proof of HO-6 coverage at time of closing, it’s much less expensive than ordinary homeowners insurance. That’s a good reason to obtain as much coverage as possible.