Purchasing an HOA insurance policy is a great way to protect your homeowners association. However, what does HOA insurance protect you from exactly? Do HOAs need it, or can they operate without insurance?
What Is an HOA Insurance Policy?
A homeowners association insurance policy, often called an HOA master insurance policy, covers the cost of common area damages and liability expenses. Master insurance usually includes two things: liability coverage and property damage coverage.
Liability Coverage
The first type of HOA insurance coverage includes liability. What does HOA liability insurance cover? Simply put, HOA liability insurance covers the cost of legal action due to accidents and injuries that occur within HOA premises.
For instance, let’s say a homeowner or their guest slips and sustains an injury while they are on HOA property. The homeowner or guest then decides to sue the HOA. In this case, the HOA’s insurance policy will cover the cost of defending the HOA in court. With liability coverage, the HOA does not need to levy hefty special assessments just to pay for its defense.
However, this insurance coverage only applies to common areas such as community lobbies, playgrounds, and pools. It does not apply to injuries within a homeowner’s property.
Property Damage
The second type of coverage is property damage coverage. It covers HOA liability for common areas and the damages they sustain. For instance, if a fire burns down the HOA’s gym, the insurance policy should be able to cover the cost of repairs.
However, the extent of coverage will vary between insurance companies and their policies. Some policies offer comprehensive coverage that covers all types of natural disasters. However, many policies offer only the bare minimum, which may exclude floods and fires.
Does HOA Insurance Cover HOA Liability for Security?
Homeowners associations are generally responsible for exercising due care to ensure residents’ safety. Hence, they can sometimes be sued for security breaches. For example, a resident may sue the HOA if a drunk driver enters the neighborhood and runs over one of the homeowners.
However, whether a master insurance policy covers the cost of these breaches depends on the terms of the policy. Some policies may provide liability coverage for property damage and injuries from criminal activities. This can include specific crimes like vandalism, assault, and theft. Reviewing your insurance policy to know exactly what’s covered is important.
What Is Condo Insurance?
Condominium insurance policies differ greatly from a standard HOA insurance policy. This is because it’s harder to distinguish between HOA property and unit owner property in condominiums.
Often, they have shared walls that can blur the line between where the HOA’s property ends and where the homeowner’s property begins. For this reason, there are typically three types of condo insurance an association can purchase:
- Bare Walls-In Coverage. This master condo insurance policy offers minimal coverage for the condominium’s structure. It covers everything behind the condo walls, including studs, insulation, and drywall.
- Walls-In Coverage. This type of coverage is more comprehensive than Bare Walls-In Coverage. It includes all of the previous policy’s protections but extends coverage for the interior structure of individual units to the flooring, cabinets, bathrooms, and outside of the walls.
- All-In Coverage. This type of coverage is the most comprehensive and covers everything in the previous two policies. However, it also extends coverage to built-in appliances and may even cover alternations and unit improvements.
Do HOAs Need Insurance?
Whether communities require homeowners association insurance depends on state law and the governing documents. In Texas, some laws require associations to carry insurance.
For instance, the Texas Uniform Condominium Act Section 82.111 requires condo associations to carry property insurance on insurable common elements for risks commonly insured against, such as fire and extended coverage. Condominiums are also required to carry liability insurance under the same section.
Apart from state law, homeowners associations should also check the governing documents. These documents may require some type of homeowners association insurance coverage. Typically, HOAs are required to carry at least a basic HOA insurance policy that covers liability and property damage.
However, even if there are no requirements within the governing documents, HOA insurance is still generally a good idea. This is because accidents will happen no matter how much you try to prevent them. Property damage is also unavoidable, especially if the community is located in an area prone to certain calamities like tornadoes, wildfires, and floods.
How Much Is HOA Insurance?
A standard HOA insurance policy provides coverage of $1,000,000 to $2,000,000. Typically, this costs around $50 to $100 monthly or $600 to $1,200 annually. However, each association is unique, and the cost of an insurance policy will vary based on several factors.
Firstly, the size of an HOA usually affects the cost of insurance. Insurance policies for larger HOAs with more units typically cost more, while smaller HOAs can expect to pay less. The number of amenities also matters, as more amenities may mean more liability. Moreover, the location of the HOA can also affect insurance prices, especially if the HOA is located in a place prone to natural disasters.
What Policies Do HOAs Need?
Homeowners associations typically need a master insurance policy. To protect the community, it may also be wise to purchase several other policies.
1. Directors & Officers Insurance (D&O Insurance)
HOA insurance usually does not cover the board members. To keep them covered in the event of litigation, the HOA needs a D&O policy. It’s a professional liability insurance policy covering the cost of legal action residents take against board members.
2. Workers’ Compensation Insurance
Homeowners associations may sometimes employ workers, freelancers, or contractors to maintain common areas or perform administrative tasks. In this case, it’s wise to purchase workers’ compensation insurance. This policy protects the HOA from being sued if a worker is injured or contracts a disease while on the job.
3. Discrimination Claims Coverage
HOAs may sometimes foreclose a homeowner’s property due to non-payment of dues. However, some disgruntled homeowners may retaliate by suing the HOA for discrimination. This policy will protect the HOA from discrimination claims.
Stay Protected
The governing documents do not always require an HOA insurance policy, but it’s certainly crucial for protecting the HOA. Otherwise, the association may need to pay for damages or liability out of pocket, which places a great financial burden on the HOA and its residents.
Does your community need proper management? A professional HOA management company like 88 Doors can help. Call us at (512) 348-8821 or contact us online to know more!
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