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Prologue: “Should I Get Insurance or Not?”

Hello, everyone! I’ve come with a clear answer to a question that often pops up in our community.

“I paid cash for a townhouse in San Francisco.
Do I really need to get insurance? Some people say yes, others say no, and it’s so confusing.”

Let me give you a straightforward answer to this question.

“Yes, you must get insurance.”

Below, I’ll explain exactly why, from legal considerations to real financial risks.
By the end of this post, you’ll know not just if you need insurance, but what kind of insurance to get and how to get it.

Part 1. The Misconception: “It’s Not a Legal Requirement, Is It?”

Many people think insurance is unnecessary because “California state law doesn’t mandate homeowners insurance.”
And it’s true, as a cash buyer, you’re free from the pressure of a mortgage lender.

However, this is only half the truth. A townhouse is part of a community, which means you must follow a new set of rules: those of the Homeowners Association (HOA). Most HOAs have bylaws that contractually obligate every unit owner to maintain individual homeowner’s insurance to protect the interests of the entire community.

What happens if you ignore these HOA rules?
You could face severe consequences, including fines, legal action, and in the most extreme cases, the HOA can even place a lien on your property.
So, while you may have avoided the requirements of a lender, you’ve inherited a new contractual obligation with your HOA.

Part 2. Townhouses Need a Dedicated Policy: HO-6 vs. HO-3

You might be thinking, “Can’t I just get a standard homeowners insurance policy (HO-3)?”
The answer is no. Townhouses require a special type of policy designed specifically for them:
the HO-6 condo/townhouse policy.

An HO-3 policy is designed to cover the entire structure of a single-family home, both inside and out. However, because townhouses share connected structures and common areas, an HO-6 policy is the appropriate choice.
Insurers don’t offer HO-3 policies for townhouses to avoid redundant coverage on the shared structure.
The HO-6 policy focuses on covering the interior of your unit and your personal belongings.

Part 3. Master Policy + HO-6: Creating the Perfect Combination

The key to full protection for a townhouse is understanding how your HOA’s master policy and your personal HO-6 policy work together to cover all the gaps.

• Master Policy: This policy, which is funded by your HOA fees, covers shared structures and common areas like the building exterior, roof, and hallways.
• HO-6 Policy: This is your personal policy that fills in the gaps where the master policy leaves off.

The type of master policy your HOA has will determine what your HO-6 policy needs to cover. You should review your HOA’s documents to find out if the master policy is ‘Bare Walls,’ ‘Single Entity,’ or ‘All-in.’

Master Policy Type	What Your Personal HO-6 Policy Must Cover
Bare Walls	Everything from the interior walls inward, including plumbing, electrical, flooring, cabinetry, personal belongings, liability, and loss assessments.
Single Entity	All upgrades and improvements made to the unit after its original construction, personal belongings, liability, and loss assessments.
All-in	Personal belongings, liability, and loss assessments.

An HO-6 policy provides crucial protection beyond the interior structure, including:

• Personal Property Coverage: Protects your belongings like furniture, clothes, and electronics.
• Personal Liability Coverage: Covers legal fees and settlement costs if someone is injured or their property is damaged on your premises.
• Additional Living Expenses (ALE): Pays for temporary housing and other living costs if a covered event makes your home uninhabitable. This is crucial in a high-cost city like San Francisco.

Part 4. San Francisco’s Hidden Risks: Earthquakes and Floods

Beyond fire and theft, San Francisco faces unique natural disaster risks that are not covered by standard homeowners insurance.

• Earthquakes: The U.S. Geological Survey (USGS) estimates a 72% chance of a magnitude 6.7 or greater earthquake hitting the Bay Area within the next 30 years. Standard policies do not cover earthquake damage, so you must purchase a separate earthquake insurance policy.
• Urban Floods: San Francisco’s hilly topography and history of developed waterways mean it is vulnerable to urban flooding during heavy rainfall. Flood damage is not covered by either a standard home policy or earthquake insurance, making separate flood insurance through the Federal Emergency Management Agency (FEMA) a necessity.

Part 5. The Real Cost of Being Uninsured

Thinking you can “self-insure” to save money is a dangerous myth.
The cost to rebuild a home after a major disaster can be hundreds of thousands of dollars , a financial burden most individuals cannot bear.

While government aid from agencies like FEMA or SBA may be available, it is not a substitute for insurance. FEMA disaster grants, for instance, are capped at a maximum of $42,500, which is a drop in the bucket compared to total losses.

Furthermore, what if someone is injured on your property?
Without liability coverage, you would have to pay all legal fees and settlement costs out of pocket, a situation that could lead to financial ruin.

Epilogue: Smart Insurance, The Path to Protecting Your Assets

Whether you bought your San Francisco townhouse with cash or a loan, insurance is a critical safeguard.

• How much will it cost?
  A standard HO-6 policy in San Francisco costs an average of $1,150 to $1,560 per year.
  In addition, you must consider earthquake insurance, which can cost an average of $1,770 to over $6,000 annually, and flood insurance.
  The total annual cost is estimated to be between $3,000 and $7,500.
  
• Tips to save on premiums:
  • Compare quotes from multiple insurers.
  • Choose a higher deductible to lower your monthly premium.
  • Install fire prevention or security systems to qualify for discounts.

To protect your home, which is likely your largest asset, don’t hesitate. Talk to an insurance expert today. Don’t be complacent just because you’re a cash buyer; make sure you’re fully protected from the risks of living in San Francisco.

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