Homeowners association insurance is essential to a community’s long-term financial health. It protects an HOA from financial loss resulting from covered perils. That said, it is important to understand what HOA insurance covers and how it affects the owners.
What is Homeowners Association Insurance?
Homeowners association insurance is a policy that specifically applies to HOAs. This policy acts as a safety precaution should the association go through a disaster or liability.
Also known as property owners association insurance, the exact requirements for this policy will depend on the HOA’s governing documents. In some states, an HOA must purchase insurance. In Texas, Section 82.111 requires condo associations to maintain sufficient insurance for common areas.
Board members should ask their provider about an HOA master insurance policy. This master policy offers coverage for property damage and liability.
The Importance of Insurance for Homeowners Associations
Even without a legal requirement to obtain insurance, HOAs should still consider purchasing such a policy. This is because a homeowners association policy offers several benefits.
For one thing, HOA insurance protects common areas such as clubhouses, pools, roofs, and walkways. If a fire or vandalism causes damage, the policy should help cover the cost of repairs or replacement.
Another benefit is liability protection. If someone gets injured in a shared space and sues the HOA for negligence, liability insurance can help cover both the legal fees and settlements.
With insurance, an HOA would not need to charge special assessments or dipping into its reserves to cover these costs. As a result, homeowners won’t have to shoulder additional financial burden.
If nothing else, most lenders require HOAs to carry insurance. Mortgage lenders will ask potential buyers if the community they plan to buy into has adequate coverage. With proper insurance, HOAs can attract buyers and encourage home sales.
HOA Insurance vs Homeowners Insurance
Although similar-sounding, HOA insurance is different from homeowners insurance or home insurance. Homeowners insurance is a policy that applies to individual properties and owners. Residents of an HOA community must still purchase home insurance even with HOA insurance in effect.
In contrast, homeowners association insurance applies to the HOA. This policy covers the association’s properties and protects the HOA and its leaders from potential liability.
What Does HOA Insurance Cover?
Typically, there are two things that fall under the coverage of homeowners association insurance: property damage and liability.
- Property Damage. The master insurance policy covers shared areas similarly to how homeowners insurance protects a private residence. If something like a fire or windstorm damages a common space the HOA maintains, this part of the policy can help pay for the repairs.
- Liability. If someone slips near the pool and sues the HOA, the legal costs can be high. More often than not, they’re higher than what dues can cover. The liability coverage in the HOA’s master policy helps avoid special assessments by covering legal defense costs. Keep in mind that this coverage typically only applies to common areas. It wouldn’t cover injuries that occur inside an individual homeowner’s unit.
What Does Insurance for HOA Not Cover?
Reviewing the specifics of the HOA’s insurance policy is essential to know what the coverage excludes. These exclusions can vary depending on the insurer and the policy itself.
Typically, homeowners association insurance does not cover:
- Private homes or units
- Personal items or belongings
- Damage from normal wear and tear
- Issues caused by poor maintenance
- Certain types of water-related damage
- Natural disasters like earthquakes, landslides, or sinkholes
- Flood damage
How Much Does HOA Insurance Cost?
The price of HOA insurance can vary based on several factors, such as the type of community, its size, available amenities, and coverage requirements. Larger communities with extensive amenities, for instance, might have to pay a higher premium due to extensive coverage needs.
That said, on average, monthly insurance costs for an HOA range from $100 to $1,000. Board members should shop around to get the best deal possible.
Types of HOA Insurance Policy to Have
Aside from a master insurance policy for homeowners association, there are other types of insurance an HOA should have. These include the following:
1. Property Coverage
In addition to a master policy, an HOA might purchase separate property insurance. This type of coverage protects shared buildings and common areas the association manages. It only applies to specific events, such as fires, vandalism, or certain natural disasters.
2. General Liability Insurance
This insurance helps cover injury or property damage that occurs in common areas. For example, if someone is hurt in the clubhouse and sues for negligence, the policy can help cover legal expenses and, if needed, the settlement.
3. Directors and Officers (D&O) Insurance
Board members can be personally named in lawsuits. D&O insurance protects them from personal liability if they’re sued over board-related decisions. It gives members peace of mind when volunteering for leadership roles.
4. Fidelity Bond
Also known as crime or employee dishonesty insurance, this policy protects the HOA from losses caused by theft, fraud, or embezzlement committed by board members or employees. Some HOAs don’t allow convicted felons to serve on the board if it would prevent the association from obtaining fidelity coverage.
5. Workers’ Compensation Insurance
If the HOA hires staff or independent contractors, it must carry workers’ comp. This coverage pays for job-related injuries or illnesses and protects the HOA from legal claims tied to workplace incidents.
6. Umbrella Policy
An umbrella policy adds extra liability coverage beyond the general liability limit. It offers additional protection for large or unexpected claims.
Financial Defense for HOA Communities
Homeowners association insurance plays a crucial role in an HOA’s financial operations. Insurance helps prevent large special assessments, loans, and reserve withdrawals. For HOA communities, it is the first line of defense after a disaster or liability risk.
Preferred Association Management Company offers exceptional HOA management services to communities in Central Texas. Call us today at 512-918-8100 or contact us online to learn more!
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