Condo Master Policy Deductibles: What Boards and Unit Owners Need to Know

Deductibles have risen across the industry as premiums rose. A higher deductible is one of the quickest ways to lower a premium, which is exactly why boards should understand what they're agreeing to.

The deductibles you're likely to see

All other perils (AOP). The standard deductible that applies to most covered losses, such as fire or a burst pipe in a common area. Usually a flat dollar amount.

Water damage. A separate, often higher deductible for water losses, now common in multi-unit buildings because water is the leading cause of claims.

Wind or hail. Often a percentage of the building's insured value rather than a flat amount. A 2% wind deductible on a $20 million building is $400,000.

Named storm or hurricane. A percentage deductible that applies when a storm named by the National Weather Service or NOAA causes the loss.

Earthquake. Where earthquake coverage is purchased, deductibles are typically a percentage of value and can be large.

Per-unit deductible. A deductible that applies separately to each unit affected by a loss. If a storm damages 20 units and the per-unit deductible is $10,000, the total deductible for that event is $200,000.

Percentage deductibles: translate them into dollars

A percentage looks small and isn't. Ask your broker to state every percentage deductible in dollars, both per building and for the whole association if one event could hit several buildings. That single step changes most boards' conversations about deductibles.

Who pays the deductible

The insurer doesn't decide who pays. Your governing documents and state law do.

Common approaches:

• The association pays as a common expense, from the operating budget or reserves.
• The association charges the responsible unit, typically the unit where the loss started, if the declaration allows it.
• A combination, where the association charges up to a set amount and absorbs the rest.

Some states limit what can be passed to an owner. Maryland's Condominium Act, for example, limits the master policy deductible that can be charged to the owner of the unit where the damage started to $10,000. Rules vary widely, so check your own state.

What lenders require

For condo projects, Fannie Mae's current Selling Guide sets these limits:

• Per occurrence: the total deductible for required perils can't exceed 5% of the master policy coverage amount. When there are several deductibles that apply to one event, they're added together.
• Per unit: a per-unit deductible can't exceed $50,000 per unit for loan applications on or after July 1, 2026.
• HO-6 coverage: when the master policy has a per-unit deductible, buyers must carry an HO-6 policy that covers that deductible.

If your deductibles exceed these limits, buyers in your building may struggle to get conventional financing, which affects every owner's resale value.

Should the board raise the deductible?

A higher deductible lowers the premium. It also moves risk from the insurer to the association and its owners. Before deciding, put these numbers side by side:

1. Premium savings per year at each deductible option
2. The deductible amount in dollars, including percentage deductibles
3. How often the association has had losses that would have hit the deductible in the last five years
4. Whether reserves or a deductible fund can cover it without a special assessment
5. Whether it stays within lender limits and your governing documents

A useful test: if saving $15,000 a year in premium means accepting an extra $100,000 deductible, and the association has had two water losses in five years, the savings may not survive the next claim.

What unit owners should know

Owners are often surprised to learn they may owe part of the master policy deductible. If your association can assess deductibles to owners:

• Tell owners every year what the deductibles are and how they can be passed through. Some associations send this with the annual budget.
• Encourage owners to check their HO-6 policy. Loss assessment coverage can help pay an owner's share of a master policy deductible or special assessment, but the limits are often low by default.
• Explain the water deductible clearly, since that's the one owners are most likely to face.

Frequently asked questions

Is the deductible per claim or per year?

Most master policy deductibles apply per occurrence (per event), not per year. Two separate water losses mean two deductibles.

Can the association buy insurance to cover the deductible?

Some associations buy a deductible buy-back or similar policy to reduce their out-of-pocket exposure. Ask your broker whether it's available and cost-effective for your building.

Our water deductible is $25,000. Is that normal?

Water deductibles have risen significantly, and $25,000 or more is common in larger buildings. What matters is whether your reserves and owners can absorb it, and whether it fits your governing documents.

Who decides the deductible amount?

The board, within what the governing documents allow and based on the options the broker obtains from carriers.

Sources

• Fannie Mae Selling Guide, B7-3-03, Master Property Insurance Requirements for Project Developments
• Maryland Insurance Administration, Condominium insurance FAQs
• Insurance Business, Water damage overtakes fire as leading peril in multi-unit buildings