HOA Insurance & Why You Need It

HOA Insurance & Why You Need It

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February 8, 2024

Homeowners' association (HOA) insurance acts as a safety net for members, providing protection against unforeseen liabilities and costs linked to community property and legal claims. Playing a crucial role in maintaining the well-being of the community, understanding the purpose and extent of coverage provided by HOA insurance is important. Read further to learn more.

What is HOA insurance?

HOA insurance (often referred to as an HOA master policy) is a form of commercial property insurance. Funded through resident dues, this insurance policy serves as a safeguard for the community, shielding it and its members from specific liability risks and other losses.

The requirement for HOA insurance varies by state of residence. Many states mandate a minimum insurance amount for HOAs, although exceptions may be made for more costly insurance types.

It’s advisable to review your governing documents, state laws, and any relevant regulations to confirm proper coverage. If you have questions, consult your community manager and association attorney for clarification.

What does HOA insurance cover?

A standard HOA master policy typically encompasses two key areas: liability and property damage.

Liability coverage

Liability coverage addresses expenses related to legal actions against the association. For example, if someone sues the HOA due to an injury sustained on its property, the liability portion may offer protection.

Property damage

Property damage pertains to physical harm to HOA buildings or common areas. If, for example, a fire damages the clubhouse and your policy includes such coverage, the HOA can file a claim for the repair cost to be covered by your insurance provider.

The scope of coverage varies among policies, with some offering comprehensive protection and others providing only basic coverage.

Regularly review your HOA insurance policy to understand the items covered and make adjustments as needed.

HOA insurance vs homeowners insurance

The fundamental distinction between HOA insurance and homeowners insurance lies in the entities they protect and the scope of their coverage. HOA insurance is community-focused, extending coverage to:

  • Common areas.
  • Structural elements of buildings.
  • Shared infrastructure like elevators and stairwells.

On the other hand, homeowners insurance is individual property-focused, safeguarding the homeowner's dwelling, personal belongings, and other structures on their property. It provides personal liability coverage for:

  • Injuries or damage arising from individual actions.
  • Personal belongings within the home.

HOA insurance vs condo association insurance

Navigating insurance for condominiums can be more challenging. In a single-family setting, there's a clear distinction between properties covered by the HOA policy and those covered by homeowners insurance. However, the same clarity doesn't apply to condo associations.

Condo owners share walls, floors, and ceilings, making it hard to determine which policy covers specific items. So, what does a condo association insurance policy cover?

In general, condo owners should have their own insurance to cover personal property and other items not covered by the association’s insurance. This works alongside the condo association's insurance, which usually falls into one of three main types:

Bare walls coverage

This policy covers the structure of the condo building, including everything inside the walls, such as wiring, plumbing, and insulation.

All-in coverage

The all-in coverage is a more comprehensive policy that adds coverage for installed features like countertops and appliances on top of a bare walls policy. Condo owners should verify whether their association has this type of policy and understand its coverage to avoid any overlap.

Walls-in coverage

With this type of insurance, the community's policy goes back to how each building and unit looked when the developer finished and first sold them. But, it's important to know that this coverage doesn't protect any changes made to units after the developer left or the personal stuff that owners have in their units.

Why having HOA insurance matters

HOA insurance is vital to safeguard the association and its members. Many HOA governing documents, particularly in newer associations, emphasize the necessity of insurance.

Without HOA insurance, the association may need to use its own funds for legal fees and settlements. In emergencies, HOAs might have to dip into reserve funds. Either way, having insurance gives residents peace of mind and delivers financial protection.

How much does HOA insurance cost?

Due to the unique amenities of each HOA, there’s no standard policy price, but the average HOA insurance policy might range between $50 and $100 per month.

Beyond amenities, other factors influencing costs include the number, type, size, and value of structures to be covered. The community's physical size, resident count, and environmental considerations also contribute to policy assessments. As with any insurance, coverage limits and additional features can affect premium payments and deductibles.

Who pays for HOA insurance?

While chosen and acquired by the HOA board, the expenses for HOA insurance are covered by community members through the HOA fees or dues paid monthly, quarterly, or annually. These fees address various HOA-specific expenses, which differ for each association.

Effectively manage HOA insurance with TownSq

Every community member should grasp the intricacies of HOA insurance. For board members who play a pivotal role as caretakers of community interests, effective management is crucial. Staying informed and engaged in handling these matters also ensures the well-being of the community.

Leveraging tools like TownSq, a comprehensive HOA app, improves communication by simplifying the process of updating residents on any changes. By seamlessly integrating a well-informed insurance strategy with these communication tools, board members can guarantee smooth operations and community harmony. Explore the impact of TownSq firsthand with a 30-day free trial!