As Rob noted below, a "walls-in" policy or "HO-6" policy is not only required by the lender, but is required by each homeowners association as well. If you live in a condominium complex, the homeowners association will require and will annually disclose to each owner (usually in the annual budget) that the owner must obtain insurance to cover his her personal property and responsibilities in the event of a loss. In most cases, the minimum deductible for any loss is $5,000 per incident,and I even know of HOAs in which the deductible has been increased as high as $10,000 per incident. Without an HO-6 policy, should there ever be a loss in your home, you--as the owner--would be responsible for the first $5000 of repairs to the property. For many, in these times, paying for an unexpected $5000 in costs can be far more expensive than the $400 in insurance premiums.
Talk to your insurance professional to obtain costs and additional information about the HO-6 policy. Also, talk with your agent about "loss assessment" coverage, which can pay for special assessments that may be assessed to homeowners for a casualty loss or unexpected damages to the community.
Area Pro Realty
San Jose, CA
Fannie Mae guidelines also require that lenders verify that hazard insurance for all condominium projects covers fixtures, equipment, and other personal property inside individual units if they will be financed by the mortgage.
New guidelines as of 2009 require that the borrower obtains a â€œwalls-inâ€ coverage policy (commonly known as HO-6 policy) unless the lender can document that the master policy for the condo project 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 unitâ€™s appraised value. The standard requirement for a 5 percent deductible applies.
Hope this helps, but let me know if you have additional questions or concerns. An HO-6 policy in the right insurance agent's hands should be affordable and you can make a good case that it's worth having anyway.