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Condominium Insurance Requirements: Are You Covered?

Orange County, CA – Condominium insurance requirements? Homeowners rarely consider the insurance coverage that is offered by the Home Owners Association. Most just assume that their unit is covered. After all, they’re making the monthly HOA payment. Did you know that Fannie Mae and HUD have specific condominium insurance requirements that an HOA must maintain? If the HOA does not have sufficient coverage then a traditional loan may not be obtained.

Here are the basic condominium insurance requirements:

1. Master Hazard Policy – The master hazard policy protects the building and project improvements. The policy must cover 100% of the insurable replacement cost of the improvements including the individual units. It’s very important that the policy lists the number of condominium units that are covered. This unit total must agree with the number of units listed by the appraiser on his report.

2. Liability – Liability is the condominium insurance requirement that protects the association from slip & falls and other “at-fault” accidents. The home owners association must maintain a commercial general policy for the entire project. This includes all common areas and elements, public ways, and any other areas that are under it supervision.  The insurance should also cover commercial spaces that are owned by the owners’ association. 

3. Fidelity – Does the condominium project have more than 20 units? If so, then the HOA will need to maintain Fidelity insurance.

What is fidelity insurance and why is it required you ask? Freddie Mac describes it this way, “The condominium owners association must carry fidelity insurance covering losses resulting from dishonest or fraudulent acts committed by the association’s directors, managers, trustees, employees or volunteers who manage the funds collected and held for the benefit of the condominium unit owners.”

4. Flood Insurance – If the property is located within a flood zone designated by FEMA then the property owner must follow FEMA’s guidelines below. If not, we need to review on a case by case basis to give exceptions. To search FEMA’s flood maps for your property click here.

FEMA Flood Insurance Requirements:

Coverage should equal the lesser of 100% of the insurable value of each building, including all common elements and property OR the maximum coverage available under the National Flood Insurance Program.

  • 100% of the replacement cost of the insurable value of the improvements or
  • the maximum insurance available from the National Flood Insurance Program (NFIP), which is currently $250,000 per dwelling for all units in condo project.

5. HO-6 (Walls-In Coverage) – This insurance protects everything inside the condominium walls. This must be obtained by the borrower unless 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.

As you can see the condominium insurance requirements are extensive. Investors need to know that the unit and the project are adequately protected from a variety of perils.

Once again, this is not something that you’ll need to handle. Your lender will request a copy of the insurance binder from the HOA to verify the insurance coverage meets the requirements. This again is another reason why it’s important to provide your lender with the HOA contact information as soon as you can.

Scott Storace

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    • Robert Johnson Says:
    • April 27th, 2012

    I’m trying to refinance my condo with a lender who plans to sell it to Fannie Mae. We’re having problems with the new Fannie Mae guidance that replaces the Walls-in terminology. The lender is requiring a statement on the policy that the insurer will insure “100% replacement cost”. So far, we’ve been to about 5 insurance companies who’s disclosure statement page does not comply with what the lender is asking for. My insurance is currently with Allstate and covers 20% of our Condo’s appraised value but this still isn’t sufficient for the lender. Our condo association’s insurance covers everything but the wall coverings and floors. As it sits now, we’re unable to refinance because of this policy. Could you shed some light on it or do you know of an insurance company that meets the new Fannie Mae requirements?

    • Scott Storace Says:
    • April 27th, 2012

    Hi Robert – Writing insurance for a condominium policy certainly has changed. Lending requirements continue to change as well. However, not all lenders follow Fannie Mae guidelines. We do not require that your walls-in, or HO-6, policy be 100% of the replacement value. The coverage that you have in place with Allstate at 20% of appraised value meets our minimum requirement.

    It’s also crucial to know some great insurance brokers…which I’m fortunate to have. In this case, though it sounds like the challenge is with the lender and not the insurance. So, your refinance is not dead. I would be happy to look at it with you so you can proceed with your refinance. Let me know if you would like my help. All the best! Scott

    • Scott Storace Says:
    • May 7th, 2012

    To add a little bit more:

    In PrimeLending’s world, as long as the HO-6 renter’s policy covers betterments and improvements then we can lend on it. This the preferred and most common direction. It’s easy and most cost effective.

    Another (less desirable) tactic is the beef up the insurance for coverage A. Coverage A is replacement value according to rebuilding cost, not loan cost. Lenders are not supposed to be able to require coverage A to match a loan because rebuilding cost is for structure only not land, however if a lender plays hard ball and will not fund unless coverage A is at a certain amount then things get complicated.

    Coverage A can increase a homeowner’s premium by 25 or 50%. This is another reason it’s less desirable.


    • Mike O'Connell Says:
    • October 26th, 2012


    Recently had 2 refis fall through because my HOA has no master policy. My home is one of two on the lot and the HOA covers just the 2 units. The individual homeowners carry their own insurance. There are similar properties in the area (2 on a lot) that don’t even have a HOA.

    Do I have any options other than upping HOA dues and having it buy the policy?



    • Scott Storace Says:
    • October 30th, 2012


    You do have another option. As long as we can show that at least one of the 2 units is owner occupied AND each owner has sufficient insurance coverage then we don’t need a master insurance policy. The insurance will need to cover general liability, hazard insurance for the units and common areas and HO6 insurance to cover the walls-in.

    All the best!

    • Sami Says:
    • August 27th, 2013

    How much should one insure the inside of an apartment per sq feet in the event God forbid it is destroyed by fire for example?

    I have read $65 sq ft to $200 sq ft. My insurance broker told me $400 sq ft and I don’t believe her.

    • Scott Storace Says:
    • August 27th, 2013

    You need to check what the HOA covers. Your coverage may include HO-6 walls in as well. If it does not, then the amount of coverage will vary based on your personal belongings, the size of the unit. YOur HO-6 policy needs to be sufficient to return the unti back to it’s condition prior to the loss. It needs to cover:
    1. Fixtures
    2. Equipment
    3. Replacement of improvements and betterments

    Therefore, that amount will be determind by you and your insurer.


    • Samatha Says:
    • September 3rd, 2013

    I am trying to refi my condo, but the lender is telling me that my master policy only has $1 million in liaiblity and that they require $3 million because my complex has over 100 units? I cannot find this anywhere on the internet, everything I see for Fannie states $1 million.. can I refi?

    • Scott Storace Says:
    • September 3rd, 2013

    Fannie Mae only requires $1M in liability coverage. The lender must have additional overlays.