HO6 Insurance Policy???

January 21st, 2010

An HO-6 policy is the form used for a condominium insurance policy. This condo policy will provide for coverage on the interior walls, interior upgrades, and for personal property held within the dwelling.

How does this apply to mortgage finance? In 24 years of mortgage banking, I have never even heard of HO6 insurance. And that is because when underwriting a condo loan, the banks only cared to see that the dwelling was insured in case of damage. And in a condo, part of condo fees go towards the master umbrella policy, so the unit owner usually does not concern themselves with getting dwelling coverage, because the master policy covers the reconstruction of their unit. But now, banks have new HO6 rules. This changed in the middle of 2009.

Fannie Mae now requires that lenders verify that homeowners insurance for all condominium projects covers fixtures, equipment, and other personal property inside individual units.  The updated underwriting policy now requires that a mortgage borrower obtain a “walls-in” coverage policy (also known as an HO-6 policy) unless the lender can document that the master policy provides the same interior unit coverage. The master policy must include replacement of improvements and betterment coverage to cover any improvements that the borrower may have made to the unit. The HO-6 insurance policy must provide coverage in an amount that is no less than 20 percent of the condominium unit’s appraised value.

So Fannie Mae, in changing this rule, is forcing condo owners to absorb some of the financial/insurance risk. Maybe this is a wise move for condo owners? It may be especially good for condo owners who have done extensive interior renovations, and would never get their unit rebuilt to the level they renovated it to, if they solely relied on the master condo policy. So maybe its good news for the consumer? Maybe its passing the insurance buck to the consumer? But in defense of Fannie Mae and the banking industry, the consumer will also be better protected.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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51 Responses to “HO6 Insurance Policy???”

  1. Joel says:

    Who are the vendors that market insurance for the condo sector?

  2. brianm says:

    Hello Joel, most major insurance providers will write this type of insurance, for example State Farm, AllState, Geico, USAA, etc. If you want to consider insurance of this type call any of the above, or call the current insurance provider that you may have a “contents coverage” policy with. The contents coverage covers your personal belongings against damage or theft, the HO6 would be good to consider in addition, especially if you have done a renovation. I myself own a condo, and did an extensive renovation. The insurance provider that covers the dwelling (that the condo’s board of directors choose and part of my condo fee pays for) says that part of the master policy’s coverage will go towards rebuilding the interior of my unit, however that this coverage is basic and not extensive.

    That master policy would end up rebuilding walls, replacing windows, and basic cabinets and fixtures. But I have installed more expensive fixtures, cabinets, flooring, etc. So I chose to get this additional HO6 coverage to cover the cost that I think it would take to redo my place to its current level of finish.

  3. Tony says:

    As a condo owner, I’ve always had HO6 coverage. I’m happy to provide my lender with proof of coverage, but get this:

    I just refinanced and (at closing) found out that my lender will be added to my HO6 policy. This gives them the right to collect and distribute funds from any claim!

    Lender says this is a governmental regualtion, but I don’t buy it. Have you come across this?

  4. brianm says:

    First, we all need to realize that in some cases HO6 coverage is a good idea. In many condos the master insurance policy will cover only common areas such as the hallways, roof, basement, elevator, and common walkways, but not the inside of the units. Hence the nickname of this policy being “walls-in” coverage”. But I have not heard of a lender requiring that they be added to the policy so that they can collect and distribute funds. If they say its a government regulation, I suggest you demand they show you a copy of this regulation to support their claim.

  5. brianm says:

    Hello Dana, FHA (or Conventional) will indeed require this HO-6 cost to be built into the debt ratios. It is a recurring cost, as such it will have to be built in as a debt. Let me know if you have any other questions, and thanks for the inquiry. Brian.

  6. Jason says:

    If you do not have any betterments or improvements to your condo, for a refinance are you still required to get the additional H06 coverage even if your master policy does include your interior (up to and including everything that is original)?

    If so, where is the benefit to the borrower that is being required to do this? Aren’t they essentially paying hundreds of dollars for coverage that they don’t need and won’t provide any value to them (on top of what is already covered by the master policy)?

    Then, on the other hand if your master policy does include your interior but not betterments or improvements, and you have made improvements, shouldn’t you only need coverage for the value of your improvement, over the value of the original. I don’t know why you would still need 20% of the appraised value…

  7. brianm says:

    They still require the HO6 if you have no betterments or improvements. Fannie Mae would tell you they do not view it as “additional H06 coverage”, they see it as “proper H06 coverage”. In other words, they think they are making everyone raise their coverage to protect themselves, as well as the lender, better. I think the point is debatable on a case by case basis. I recently saw a client who had $15,000 of coverage for interior items on a $400,000 condo. The requirement of 20% coverage would require $80,000 in interior coverage for this unit. The owner wanted to leave the $15,000 intact, which was clearly insufficient. Was $80,000 too much? I don’t know, I’d need to see the unit. The bottom line is that you can raise the coverage to get the loan through, and you can opt to reduce it after settlement later. But if you suffer a major loss, you could really be in for a major expense, all just to save a few hundred a month. I am not a fan of the arbitrary nature of how Fannie Mae has determined the 20% coverage requirement, but I do believe there are many under-insured condos out there, related to their interior finish and appliances.

  8. Jason says:

    Still not sure I follow.

    If I have not improved anything, and my Master policy covers my interior to the original quality, what is the H06 going to cover in addition to the master policy?

    Without the additional coverage, my condo’s floors, countertops, walls, etc are going to be replaced with the same quality that was originally installed. Since I haven’t improved anything, that means everything will be replaced with the exact same quality as currently there.

    So hw is this “proper H06 coverage” any better than a master policy that covers the interior when there are no improvements?

    Thanks!

  9. brianm says:

    If your Master Policy covers all of your interior items, you would not be required to get HO6.
    But most Master Policies do not cover 100% of the existing interior items, I have yet to see one.
    If yours does, then you will be fine.

  10. Jason says:

    Thanks for the response. Here is how my policy reads “The master policy provides coverage for the interior of units as they were originally
    conveyed by the developer.” Don’t know if there is a way to get more details or not.

    I have shown this to the lender and stated that there have been no improvements, but they say Fannie Mae is still going to require the additional coverage…

  11. brianm says:

    The lender may require something that says, “guaranteed replacement cost policy”.
    Having a policy that says, “The master policy provides coverage for the interior of units as they were originally
    conveyed by the developer” may be too vague for the lender.

    The bottom line is that you can raise it, and then drop it after settlement.

  12. jane says:

    I want to buy a FNMA condo but listing agent cannot seem to tell me whether or not there is a master ins. policy in place (total of 8 units, 5 being owned by one person, the other 2 owned but rented). How do I find out if there is a master ins. policy and would FNMA sell a condo that did not have one in place? Also do not know if there is even an active association in place. Really want this place but don’t want to get into a potential future nightmare either. Thanks

  13. brianm says:

    Hello Jane, FNMA would never do a loan without a master insurance policy. But, you have bigger problems. With one investor owning 5 of 8 units, no one will ever do a loan on that building. Fannie Mae and Freddie Mac say that one owner cannot own more than 10% of a condo building. There is no yielding on that rule, so that building is not able to get financing at all. The seller will have to sell that unit to an all cash buyer. Sorry there is not better news.

  14. Tracey says:

    We are in the same position as Jane (#12): No loan without a master policy. It’s a 4-unit condo complex. 2 have been sold to separate cash buyers and 2 are still available. Couldn’t we look into a non-conforming loan?

  15. brianm says:

    Hello Tracey, there really are no more “non-conforming” loans for condos. No one wants to take the risk. The loan either needs to fit Fannie Mae & Freddie Mac guidelines, or there is no alternative. The last 2 loans will have to be all cash offers also. Or, you’ll have to work with the current 2 owners, and get the Master Insurance policy setup, and put anything else in place the condo may need, to pass Fannie/Freddie scrutiny.

  16. david says:

    i am actively pursuing the purchase of a condotel.
    it has come to my attention that fnma/frmc will no longer underwrite a condo tel. if that is the case, the HO6 requirement becomes mute, correct?
    i’m undecided as to paying cash or financing at this time.

  17. brianm says:

    Hello David, yes, getting a Condotel loan through is difficult to impossible. I have one source that will consider a condotel loan in CA, and that is it. They want a large down payment, like 40% or 50% down. But if you do pay cash, you are correct, the HO6 requirement goes away. Although, I’d still get some coverage, to be safe.

  18. Rob says:

    Thank you so much Brain for your great insight on this topic. You have provided excellent clarity on Ho6 insurance.

    Here is my situation: I am in the process of closing refinancing my condo. Loan is approved & i submitted all the documents including master insurance policy (HoA) & existing Home owner insurance policy(HO6) 3 weeks back.
    Last week just about to sign for closing papers, lender is insisting me to provide proof of insurance of Ho6 with 20% coverage (dwelling).
    I check with my insurance company. They told me that (condo) Ho6 will not cover Dwelling coverage. Now my lender told me to add optional coverage ‘’owners addition & alterations’ to 20% refinance value instead of dwelling coverage. This will add few thousand dollars of premium to me over period of 15 years of loan. Makes my refinance not a viable option. I told my lender that I am not going increase my Ho6 “owners addition& alterations’ coverage to 20% of refinance value.
    Can you pls. clarify : Is ‘owners addition & alterations’ coverage same as dwelling coverage ? My loan processer has no idea on what is talking about.
    If my HoA insurance policy ( master insurance policy) has dwelling coverage 20% of refinance value , Is it mandatory to have another 20% ‘owners addition & alterations” coverage through Ho6 . By the way my condo is 2 story & reside in California state. Thanks in advance.

  19. brianm says:

    Hello, dwelling coverage is not the same as HO6. HO6 is also called “walls in” coverage, which means it covers your upgrades, finish items, fixtures, etc. All that the master insurance usually covers is the dwelling (i.e. the building) and the systems, not your interior finish items. This is why Fannie Mae wants the HO6, so that the consumer is better covered in case of a total loss. So if you have proper dwelling coverage, and no HO6 (or walls-in) then you will need to comply with the lender’s request. It is very rare to find a master policy that has any HO6/walls-in coverage.

  20. brianm says:

    I don’t see that you HO6 policy has any “walls-in” coverage. I think you may just have some basic coverage, with no walls-in, which is why the lender is asking for more.
    I’d take yourself out of the middle of it, have your insurer call your lender directly, and have them clarify things with each other.

  21. Josh says:

    Brian, you said “you can raise the coverage to get the loan through, and you can opt to reduce it after settlement later”. How can you do that? What allows you to reduce it later if you’re obligated by the loan documents to insure 20% of the unit’s appraised value?

  22. brianm says:

    You are not obligated to maintain the 20% coverage forever, it needs to be in place at settlement. Unless the lender is forcing you to escrow for it, after settlement, you can alter it. It’s the same concept as signing loan docs that say you are going to be an owner occupant, but then a few months later a work relocation, change of heart or financial circumstances forces you to rent the place and live elsewhere as your primary residence. However, many people that drop their coverage later are likely under-insured in case of a major loss.

  23. Todd says:

    Brian, if a mortgage for a condo was originated in 2003 and is owned by Fannie Mae can the Servicer or Fannie Mae now require you obtain an HO-6 policy? It was not required at time of closing in 2003. Is this a retro active policy?

  24. brianm says:

    Hello Todd, no, these policies are not retroactive. They are effective for all new loans only. So if you purchase a condo, the new HO6 rules apply, and if you refinance an old loan, no matter when it was originated, the new HO6 rules apply.

  25. Sal says:

    I was wondering if you can get the policy for one year until you have completed the loan and then forget about it, or even after you’ve signed the loan, cancel the policy. I don’t need it, I’m forced to do it because of the new regulations.

    Can that be done ??

  26. brianm says:

    Hello Sal, yes, I have had people get an HO6 policy to satisfy the lender, only to cancel it later. But realize you are likely leaving yourself under insured if you do so.

  27. Sal says:

    Hi Brian

    Thanks for getting back to me so fast. Yes I do realize but I have never had a claim in my life of any kind.
    I’m just the average Joe, going to my job back an forth so…. Never been in an accident or had any trouble. I think it’s a waste of money on my part .

  28. brianm says:

    Yes, but realize if there is a total loss, by fire for example, you will likely be exposed to some losses.

  29. kdk says:

    Brian – I am in the process of a refi and just found out about this requirement. This posting has been very helpful. We already have HO6 coverage, but are told it is not enough. The required $158,000 of building property insurance seems really high. There is only so much flooring, shelving, light fixtures, etc., that you can put into a 1,300 sq ft condo over and above what the original building plan provides. I spoke to our agent who says that this is the highest requirement they have seen. It would also increase our homeowners insurance by 33%. We still make up the increased cost of insurance with the lower interest rate, but it seems really unnecessary and will definitely try to reduce it after closing.

  30. brianm says:

    I am glad you found the post helpful. I am in the same scenario on my own condo. I find the coverage excessive, but only slightly so. I did a major renovation on my place, and although I am probably covered in excess of what I need, it helps me sleep at night knowing I have no worries. My HO6 costs me about $400 annually, and maybe $50-$100 of it is not needed. But, I don’t know for sure, labor can be very expensive, and as I said, it helps me sleep at night. You can make an adjustment after settlement, but think it through carefully.

  31. Bill says:

    Hi Brian –

    I dropped my HO6 policy about a year and half ago as I’ve never had a claim & thought it was a waste of money also. I went to talk about refinancing today & was told my HO6 policy would need to be linked with the lender now. I’m guessing I’ll be denied if I still go through with the application. Is there a certain time limit one needs an HO6 policy before they can get approved? Should I go and get my HO6 policy now before applying or just wait and see if I can purchase right up before closing?

  32. brianm says:

    You can get an HO6 policy right before settlement on a refinance. The question is, is the lender going to require that you escrow for it? If you have to hold an escrow account with the lender, and they pay the bill for the HO6; then it may be difficult or impossible to cancel it after settlement, if that is your intention. If they require no escrow, then you control it, and can get it for the transaction and cancel it later. However, I am not so sure its a waste. You know what they say….everyone wants insurance after the storm has passed. So if all insurance is a waste, then you’d drop auto, health, renters, HO6, etc. And I do not think I’d be an advocate for any of those choices.

  33. Bill says:

    It sounds like one lender wants to escrow and the other would just require I carry it. I’d probably go with the one that just requires it if their rates are the same/similar. I’ve been meaning to get an HO6 policy again anyway. I’m not so worried about theft since I got a dog, but a pipe bursting could be disastrous. The rate decrease alone per month would pay for it anyway in 1 1/2 months.

    Also, do you know about Lender paid Mortgage insurance. I was just told that the first rate I was quoted would actually go up 3/8’s of a % point since mine was originally done as such. He said I couldn’t switch to a total “conventional” loan and just pay mortgage insurance myself since the originaly loan was lender paid mortgage insurance.

    Thanks for the feedback. Your posting has been very helpful (this stuff gets confusing). I actually used to do Title Insurance and still get confused with all this stuff.

  34. brianm says:

    I am not aware that you “have” to take a lender paid PMI plan if the first mortgage was done that way. I think each time you get a loan you can get PMI setup whatever way you want. If you are going back to the existing lender, they may have some internal policy that I do not know about, that requires the PMI to be done the same way, otherwise, I’d ask around to some other lenders.

  35. Doug says:

    I am in the middle of this HO6 issue as well. The bank force placed a policy on me for $585.00. It covers flooring, plumbing, cabinets appliances etc. The Master Condo policy as required by the Master Deed is a walls in policy that uses the exact same wording in the policy. My agent supplied an interpretation letter staing that the insurance in place is replacement value and includes plumbing, cabinets appliances etc. Bank says they need personal items like TVS and couches covered. They are intractable on this. It is something we should file an OCC complaint on and push for a way that stupidity can be fought. I am refinancing with a local bank who has looked at this and agrees with me.

  36. brianm says:

    I would push back hard, especially of the current master policy already covers “walls-in”. However, the question is does it cover the exact amount that Fannie Mae requires? Realize that this ia a Fannie Mae issue and not a bank issue. If your master policy does not cover up to 25% of the appraised value of walls-in, it is not acceptable. Your master policy may only cover $25,000 for example, and if if your place is worth $400,000, for example, 25% of that requires a $100,000 HO6 policy. So although you may have one through the master policy, it may not be sufficient. Could that be the issue? Otherwise, sounds like you will have to take the HO6 policy they want you to and put it in place.

  37. Doug says:

    Spoke with FNMA rep who ointed me to SVC-2011-23: Condominium Insurance Requirements dated 12/28/2011. Posted to Allregs on 1/18/2012. This doc sets out clearly that the 20% rule is no longer in place but rather simply that “FNMA will require that an HO6 policy must provide sufficient coverage as determined by the insurer that is sufficient to repair the condominium unit to at least its condition prior to a loss claim event” Further states that a walls in or all in master policy would relive the requirement to have an HO6 policy. The bank ( a big one and I work for them in a different dividion) still doesnt care. Their outsourced ins coverage people cant spell let alone read and interpret. Hope this helps some people get this fixed at the banks.

  38. brianm says:

    Wow, great work in figuring this out. I am going to post the new FNMA rule on this below my comment to you. However, even though FNMA has changed things to allow the lender to interpret this on their own, I can see the problem being that its too difficult to underwrite. When you tell a lender that they can do away with the HO6 requirement, but make sure that the master policy as an “all-in”policy, or is sufficient to cover the fixtures, building service equipment, and
    common personal property and supplies as well as equipment and improvements; the problem is how do you determine what is “sufficient”. This will add an extra few hours to the underwriting of each file, at a time when underwriting a loan has already gotten overly onerous on the lender and underwriter. So the easy shortcut is not to do the hours of analysis needed to see if the current policy is sufficient, but just to require an HO6 for 20% of the appraised value, that is the easy answer, and one that FNMA still allows for if the lender sees fit to ask. You’d be hard pressed to find a lender who is going to take the time to do the analysis needed, and if they did, they’d have to pas that cost on to you in higher fees or a higher interest rate.

    Here is the policy as its currently revised, and you can see how its very confusing and burdensome for the lender:

    Revisions to HO-6 Requirements and Elimination of “Walls-in” Insurance Coverage Terminology:

    Servicing Guide Part II, Chapter 2, Section 205, Coverage Required for Units in Condominium Projects
    Currently the Fannie Mae Servicing Guide states if the master or blanket policy does not cover the unit’s
    interior, then the borrower must obtain a “walls-in” policy (commonly known as an HO-6 policy).
    Fannie Mae is eliminating the use of the term “walls-in” policy and is revising the requirements for a
    condominium homeowner’s association master or blanket insurance policy. The new requirements are
    described below.

    1. A “single entity” policy — the policy must cover all of the general and limited common elements that
    are normally included in coverage. These include fixtures, building service equipment, and
    common personal property and supplies belonging to the homeowners’ association. The policy also
    must cover fixtures, equipment, and replacement of improvements and betterment coverage to
    cover any improvements that have been made inside the individual unit. If the unit interior
    improvements are not included under the terms of this policy type, the borrower is required to have
    an HO-6 policy with coverage, as determined by the insurer, which is sufficient to repair the condo
    unit to its condition prior to a loss claim event.

    2. An “all-in” (sometimes known as an “all inclusive”) policy — the policy must cover all of the general
    and limited common elements that are normally included in coverage. These include fixtures,
    building service equipment, and common personal property and supplies belonging to the
    homeowners’ association. The policy also must provide coverage for fixtures, equipment, and
    replacement of improvements and betterments that have been made. As such, a borrower is not
    required to have an HO-6 policy. If the unit interior improvements are not included under the terms
    of this policy type, however, the borrower is required to have an HO-6 policy with coverage, as
    determined by the insurer, which is sufficient to repair the condo unit to its condition prior to a loss
    claim event.

    3. A “bare walls” policy – the policy typically provides no coverage for the interior of the condominium
    unit which includes fixtures, equipment, and replacement of improvements and betterments. As a
    result, a borrower will also be required to obtain an HO-6 policy.
    For policies covering the common elements in a PUD project and for policies covering condominium or co-op
    projects, the maximum deductible amount must be no greater than 5% of the face amount of the policy. For
    blanket insurance policies that cover both the individual units and the common elements, the maximum
    deductible amount related to the individual unit should be no greater than 5% of the replacement value of the
    unit.

  39. Doug says:

    We all have to pay for an appraisal and agents have been asked to interpret deeds for lenders. Why cant we ask the insurance agents to use the appraisal info if not the value to determine whether coverage is adequate to cover the insured interest. Apparently I cant spell either. Excuse the typos above.

  40. brianm says:

    No problem on the typos 🙂 It is not the insurance agents that would need to do the analysis, it is more the underwriters at the lenders who would do it, along with the help of the insurance agent and the property manager. You may find some lenders that will go through all the effort to do all the needed research, but most lenders will take the easier route and require the 20%, I imagine.

  41. Jason says:

    I’m trying to refinance and I’ve run into this roadblock. What a headache. My master insurance does not have the appropriate coverage and simply having an HO-6 is not enough for my lender. They require that the certificate specifically states that my insurance coverage is “sufficient to repair the condo unit to its condition prior to a loss claim event.” I’ve spoken to two insurance agents today and they are reluctant to add this specific wording to the HO-6 policy. One is a major/national insurance company and they don’t know how to handle it. Unbelievable. I’m stuck in the middle an not quite sure where to turn. I feel like the insurance companies need to catch up and get with the times. And I’m a little annoyed at FMFM for making this tougher for me even though I have adequate coverage. Shouldn’t they be making it easier!!

  42. brianm says:

    Agreed, that is outrageous. I have been in this crazy mortgage business for 26 years now, and have done well over 3,000 loans, and have never heard of any lender who insists on the language, “sufficient to repair the condo unit to its condition prior to a loss claim event.” That is equal to asking for “guaranteed replacement cost coverage” and there are very few insurers who do that. It is impossible to guarantee what prices of labor and materials will do going into the future, so insurers are hesitant to use that sort of language. You either need to switch lenders to one more reasonable, or switch insurers to someone who will write a guaranteed replacement cost policy. If you have a great interest rate that you cannot match, you may want to do the latter.

  43. nanay says:

    we’re supposed to close on a condo, but was extended for a wk to fix leak on ceiling. seller is staying 10 days after closing. I want to get a HO6 before closing (in 3 days) and insurance won’t be able to send someone out to go in until 4 days after closing. Im a first time buyer and Im afraid im inheriting problems. Leak was due to bottom owners AC unit that leaked to Seller’s ceiling. I don’t want surprises when it rains or when bottom unit owner starts using the AC this summer. Im glad I had the ceiling, which was almost 3/4 of a foot opened, inspected by mold inspector otherwise they wouldn’t have taken me seriously.

    Please help.

  44. nanay says:

    by the way it is a shortsale and it was agreed to be sold “as is”, but when I had mold inspector checked it due to my daugher’s allergies, seller agreed to have it fixed but it is my realtor’s contractor friend who is fixing it and realtor will pay for it initially hoping to get reimbursed by HOA. HOA said they will have it investigated but they already fixed problem last year and thought Seller should shoulder the cost of aesthetic. Obviously there was still a problem after the strong rain in LA two wks ago which helped me see the problem. Im afraid after closing, if leak occurs again, my HO6 policy might not cover it due to pre-existing condition. Im exhausted just thinking about this.

  45. brianm says:

    I am surprised your lender will allow you to settle without an HO6 policy in place. I did not think that was allowed. I would check on that with them. But if they will allow it, it is up to you to take the risk or not. If it were me, I’d delay settlement until the HO6 policy could be put in place, I would not take the risk. But when you buy a short sale, there is a certain amount of risk you have to be willing to take since you are getting a good deal on these short sales usually. I would still hold off though.

  46. nanay says:

    I found out Escrow is requiring HO6 so, lender found Farmers to “bind” the property so we can close on 27th. We haven’t done walk thru and read documents ahead of time. They said we have to close otherwise, the property will go on trust of deed sale? I wonder if I can still ask for an extention, although agents are pushing.

  47. brianm says:

    At least the lender has found someone to bind your HO6 coverage, so you are covered in that respect. Just make sure you have as much “liability” coverage as possible on any insurance policy put in place, in case of any mishaps, since the seller will be in the property post-settlement as part of the rent back.

  48. jamesm says:

    Why is it that fannie mae requires the “building property” portion of the HO6 to be 20% of the total appraised value? Shouldn’t the 20% apply to the value of the improvement/building only? Why should the HO6 be applied to the value of the land? In some neighborhoods the appraised value is mostly land, whereas in other areas the appraised value is mostly building. Why should anyone need “fire insurance” on land? Leave it to the government to screw things up!

  49. brianm says:

    I agree James, it is a bit odd. They do make a distinction on a single family home, and they allow the insurance to be on the value allocated to the house, not the land. You don’t need fire insurance on the land, the land is not going anywhere. But HO6 is not fire insurance, HO6 is insurance to rebuild inside finish items, appliances and upgrades. So I am sure 20% of the total value was someone’s estimate of what a fair number is to cover these sorts of interior finish items. Had they not used total value, and used only the value of the building, for example, and excluded the land value; then they would have upped the percentage. So maybe they would have used 35% of building value, versus 25% of total value, and maybe that would come out to the same number? But then again, maybe that number would be more accurate? So your point is well taken. If a building is destroyed, and the Master Certificate of Insurance covers rebuilding the dwelling and systems, and HO6 is supposed to cover rebuilding the interior finish items; there must be a better way of valuing those interior finish items than a formula that includes land value. Maybe they should ask appraisers to estimate interior finish items/cost to rebuild the interior on each appraisal, or use a formula based on square footage? There must be a better way, agreed!

  50. Diane says:

    Our lender wants 20% (26k) of the appraised value (141k) HO6. I’m having a hard time getting someone to write a 26k policy as the interior replacement would actually be about 5k – not including contents. This condo has a beautiful view of the water and is about 500 sq ft. The price is in the view and not the walls. Anyone ever have to deal with this? Can I include contents value to come up with the 26k or is that separate?

  51. brianm says:

    Hello Diane, I am surprised you can’t find an insurance company to write a large policy, even if it appears unneeded. I would keep calling insurers until you find one, I can’t imagine that there is not an insurance agent that will not do it. Maybe try an insurance broker, who uses several insurance companies.

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