What to know about Illinois condo insurance

What is Illinois condo insurance?

Illinois condo insurance typically falls into two categories: the master policy purchased by the association and the HO-6 policies purchased by individual unit owners.

The master policy is purchased by the condominium association and typically covers shared structures, common areas, and sometimes fixtures within individual units, depending on the policy type. These policies are often classified as either “bare walls,” “single entity,” or “all-in” coverage:

• Bare walls coverage includes only the structural framework
   
• Single entity extends to original fixtures and built‑ins that were part of the unit when the building was first constructed
   
• All‑in policies generally include not only the original fixtures but also any subsequent improvements or betterments made by unit owners

HO-6 insurance, on the other hand, is a personal policy purchased by the unit owner. It may cover personal belongings, parts of the unit not covered by the master policy, liability claims, loss assessment protection, and additional living expenses if the unit becomes uninhabitable.

Master policy terms vary widely between associations. Clear communication between the association and unit owners is essential so that everyone understands where the master policy coverage ends and the HO-6 policy begins.

This article is not intended to and does not constitute legal advice or create an attorney-client relationship. Board members should consult their association’s attorney to discuss the legal implications of their decisions or actions prior to proceeding.
 

What does Illinois condo insurance cover?

Illinois condo insurance may cover physical damage to shared property, liability protection, and loss-related expenses for both associations and individual unit owners.

For associations, the master policy generally includes:

• Structural coverage for common elements such as exterior walls, roofs, walkways, and community facilities
   
• Coverage for bare walls, floors, and ceilings of individual units
   
• Ordinance and Law Coverage A, B, and C (covered later in this article)
   
• Liability protection for injuries that occur in shared areas
   
• Directors and Officers (D&O) insurance for board members
   
• Coverage for amenities like clubhouses, pools, fitness centers, and other community features

For unit owners, HO-6 Illinois condo insurance policies may cover:

• Personal property inside the unit, such as furniture and electronics
   
• Interior improvements not included in the master policy
   
• Loss assessment coverage, which can help pay for portions of claims shared among unit owners
   
• Liability protection for incidents occurring within the unit
   
• Additional living expenses if the unit becomes temporarily uninhabitable

Each policy should align with the association’s governing documents. For instance, if the master policy is "bare walls," the unit owner may need to insure flooring, cabinetry, and appliances. Conversely, if the master policy is "all-in," less coverage may be needed on the HO-6 side for interiors. Regardless, both policies should be reviewed and updated periodically to reflect any changes to community infrastructure or insurance regulations under Illinois law.
 

Is Illinois condo insurance required?

Illinois condo insurance is generally required by law for associations, but not for individual unit owners.

Associations are often required to carry a master insurance policy under the Illinois Condominium Property Act. Typically, this policy must provide coverage for the common elements and the units’ bare walls, floors, and ceilings at a minimum. Depending on the governing documents, parts of the individual units may also be covered.

For unit owners, while Illinois law does not typically mandate individual HO-6 policies, many associations require unit owners to carry them as a condition of ownership. In some cases, mortgage lenders will also require HO-6 insurance as part of the loan approval process.

Even if it’s not explicitly required, many unit owners choose to purchase HO-6 insurance to protect their personal property and limit out-of-pocket costs in the event of damage or liability claims.
 

Common misconceptions about Illinois condo association insurance

D&O insurance is based on when a claim is made, not when the incident occurred.

D&O coverage can offer protection for board members as well as their spouses, other volunteers, committee members, staff, the association management company, and the community manager. However, one aspect of this coverage is often misunderstood: D&O insurance is typically claims-made, not occurrence-based. An occurrence policy covers accidents and incidents that happen during the coverage period. A claims-made policy, on the other hand, provides coverage if it is in force at the time a claim is made.

This is an important distinction because it’s not unusual for someone to file a claim long after an incident has happened. If a claim is filed while the association has D&O coverage, it typically doesn’t matter when the incident occurred. Any past, present, or future officers and board members may be covered.

Boards should work with their insurance broker to confirm that their policy includes a retroactive date or “Full Prior Acts” clause that dates back to the association’s incorporation. This can help protect against gaps in coverage.
 

An umbrella policy does not supplement your property coverage.

A common misconception about umbrella policies is that they provide associations with additional property coverage. Here’s how they really work: Once you have exhausted the limits of your general or D&O liability policy, the umbrella policy goes into effect to provide additional liability coverage. However, it does not provide any additional property coverage.

Some condo associations will reduce the amount of property insurance they have, mistakenly believing they can save money and still be covered by the umbrella policy. Unfortunately, this strategy can leave the community significantly underinsured. Umbrella coverage is a valuable addition — but it works in tandem with strong primary liability policies, not as a replacement for comprehensive property insurance.

Every part of building Ordinance and Law Coverage (A, B and C) is necessary. 

If your community is older, the existing structures may not comply with current building codes. Property insurance only covers the cost of rebuilding these structures to the original standards, not to any new standards.

That’s where building Ordinance and Law insurance comes in. This coverage can fill the gap between what your property insurance covers and the cost of complying with current standards — but only if you get all three parts:

• Coverage A — Loss to the Undamaged Portion of the Building: Depending on local building ordinances, you may need to demolish and rebuild a building that incurs a significant amount of damage (generally 50% or more) so that it complies with current codes. Coverage A reimburses the association as if the building sustained a total loss, even when it was only partially damaged.
   
• Coverage B — Demolition: This provides coverage for the cost of demolishing and removing debris from the undamaged portions of a building that’s been partially damaged.
   
• Coverage C — Increased Cost of Construction: This part covers the additional cost of meeting current building codes when reconstructing an older building. For example, current code might require you to install a fire sprinkler system if a major fire damaged your older building.

How FS Insurance Brokers can help

FirstService Residential’s affiliate company, FS Insurance Brokers, merges deep insurance expertise with our leading community association management insights to help deliver stronger protection and lower premiums. They can work directly with Illinois condominium associations to review their master insurance coverage and help board members understand where unit owners may need additional protection. Contact us today for more information.