HO-3 vs HO-6: Do You Know What Type of Homeowners Insurance You Need?

couple deciding on what type of homeowner insurance they need

If you are a homeowner in a community association, whether single family, condominium, or townhome, are you certain you have the correct form of insurance?

When you own a home in an association, you may be told somewhere along the line that the association is providing insurance. This is probably true. However, as a homeowner, you need to understand exactly what the association insures so that your personal homeowners insurance policy will fill in the gaps. There are two common policy forms of personal homeowners insurance, the HO-3 Policy and the HO-6 Policy.

There are several things the HO-3 and HO-6 policies may have in common such as coverage for your personal contents, liability protection for your premises, additional living expenses and loss assessment protection. The major difference is the extent of the building/dwelling coverage provided by each policy form.

If your home is part of a single-family home community, the association will insure for common property owned amongst the homeowners such as a clubhouse, entry monument, light post, gazebo, benches, playground, etc. The association does not provide any coverage on your home. In this situation, you will need an HO-3 Policy to cover your home for the full replacement value. The HO-3 Policy provides coverage to rebuild your home top to bottom, inside and out.

If your home is a condominium, the association will cover the structure of the building and your unit up to the first coat of prime on the walls. The association will also replace permanently installed items inside your unit such as cabinets and fixtures. However, the association only needs to replace these items with the same quality of materials as originally installed by the builder. In order to properly cover your unit, you will need an HO-6 Policy to cover the inside of your unit. The HO-6 Policy will provide coverage for the finishes on the walls, flooring, upgrades and improvements, and additions and alterations. If you have remodeled your unit or changed anything inside your unit, it will be your responsibility to insure for its replacement under your HO-6 Policy.

If your home is a townhome, you might need an HO-3 but then again, you may only need an HO-6. You should consult your Declarations and By-Laws and/or a trusted professional such as your property manager, attorney, or insurance agent to help you understand the coverage provided by the association. The single most common mistake is that the homeowner purchases an HO-6 policy when they really need an HO-3. In the case of townhomes, it is often assumed that the association is responsible for insuring the buildings in the same way a condominium association would insure itself. If your townhome association does provide coverage like a condominium association you would need an HO-6. However, townhome owner beware, your association may maintain the exterior of your home, but they may NOT be responsible for insuring it. If this is the case, you will need an HO-3 Policy. For example, your townhome association may replace your roof or gutters if they begin to show signs of wear and tear. However, if your roof and gutters are damaged or destroyed in a storm or by fire, their replacement would be your responsibility under your HO-3 Policy.