As a homeowner, you can benefit from HOA insurance in many ways, including community upkeep, neighborhood events, and the development of guidelines for the neighborhood. An HOA is an excellent way to ensure that residents’ concerns are heard and that they have some level of security in the event of an incident in a public place. As you read further, you’ll understand all about HOA insurance policy coverage and requirements. You’ll also learn about the different HOA insurance companies out there.
What is an HOA?
Homeowners associations, also known as HOAs, are organizations that are overseen and controlled by certain features of your condo, subdivision, or other planned community. These associations might be directed by a team of elected leaders. There are several aspects of HOAs, each of which has the potential to have either a positive or a negative effect on homeowners. If you have a better understanding of these factors, it will be easier for you to evaluate whether or not living in a neighborhood with a HOA is the best option for you.
HOA Insurance and How it Works
The HOA insurance coverage policy safeguards both the HOA and its individual members. Don’t make the error of believing that purchasing HOA insurance is difficult or time-consuming; it isn’t.
You can gain from HOA insurance in a variety of ways, as I have mentioned. A homeowners association (HOA) is probably something you’re a part of if you reside in a condo or gated community. This comes with a ton of benefits for homeowners, such as community rules to prevent nuisances and disturbances and a pool, gym, playground, and clubhouse that are all shared. However, the HOA costs that come along with the enhanced benefits typically cover the upkeep of these amenities and the HOA’s general insurance policy.
HOA insurance can protect you from having to pay loss assessment fees for expensive claims that the association’s insurance does not completely cover, in addition to protecting the association from liability and property damage claims. You can determine your own needs for condo or home insurance by understanding how HOA insurance functions.
The HOA insurance policy works in the same way that other insurance plans do: it protects against property and liability claims. If community property is harmed or the HOA is sued, the insurance company will investigate the claim and determine what is covered.
In addition, not all HOA claims are for physical injury. Residents may sue over issues such as how board elections are advertised or how frequently the common areas are maintained.
HOA Master Policy
Most HOAs have what’s called a “master insurance policy,” which provides insurance protection for the HOA itself in the event of a claim. Nevertheless, the master policy is beneficial to more than just your HOA. In addition to this, it shields you from the possibility of having to pay the costs of liability expenses or repairs to common spaces that would otherwise be passed on to you in the form of special assessments.
What’s Covered by the HOA Insurance Coverage Policy?
An HOA insurance policy (sometimes called a master policy) protects you from legal action in the event that someone is hurt on HOA property. The condo association’s insurance would cover damage to the exterior walls of your condo. However, there are limitations to your coverage that you should be aware of.
What’s not Covered…
HOA insurance is designed to shield you from financial responsibility for accidents or damages sustained in shared areas, but this doesn’t mean you’re completely safe. Your homeowners’ association isn’t responsible for things like your legal responsibility for accidents that happen on your land or inside your dwelling. Furthermore, HOA insurance will not compensate you for the loss or theft of personal property (even if it occurs in shared areas).
Let’s break it down: The HOA insurance policy does not cover:
- Damages from earthquake
- Personal items that have been destroyed or stolen
- Physical damage to your home
- Physical damage to the interior of your condominium
- Claims that exceed the limitations of the HOA insurance policy
The limits of your HOA’s insurance policy also apply to shared spaces. If the amount of damage exceeds the coverage provided by the association’s insurance, the HOA may ask each resident to make a financial contribution.
Important HOA Insurance Policy Requirements
Since there are various types of policies that are advantageous to HOAs, many choose a “master policy” that combines those coverages into a single policy. Insurance protects the common areas for which the HOA is liable in the event of theft, vandalism, or natural catastrophes.
The following are the HOA insurance requirements:
#1. Coverage for D&O
Directors’ and officers’ (D&O) insurance covers the leaders of a business from being sued. In the case of HOAs, any damage claims that are made against board members are waived.
Some HOAs have shared areas like patios, clubhouses, or pools that can be rented out for weddings or other events. These areas are often used for social events and gatherings. The homeowner is more responsible to the HOA in those cases, especially if alcohol is allowed. The HOA is protected by social host liability.
#3. Coverage for Garage Keepers
If your HOA has a garage where people who aren’t members can park, the insurance should cover garage-keepers. This insurance protects both the garage group and the owners of the cars that use the garage from damage or theft of their cars.
#4. Bonds for workers’ compensation and employee dishonesty
Like any other business, an HOA has employees, and it’s important to pay them properly when they get sick or hurt on the job. This kind of coverage can be very helpful if a worker gets seriously sick or hurt and sues the HOA for making them work in dangerous conditions, even if your association is only made up of contractors.
Employee dishonesty bonds protect an HOA from workers who aren’t honest and who damage or steal property. Talk to your insurance company about the highest amount of theft or damage that their policy will cover to make sure it’s the right amount for your group. Surety Solutions says that a HOA that needs to cover losses of $100,000 can expect a dishonesty bond to cost $300 to $400 per year, though some bonds start at $100.
It’s important to carefully think about your wants and risks when choosing this type of insurance, just like when choosing any other type. Not every HOA is the same in terms of things like budget size, number of board members, shared areas, and so on. Also, each state may have different rules about home safety that a HOA must follow.
Best HOA Insurance Companies
Farmers Insurance offers products for planned communities, condominiums, and other community associations. This company allows you to tailor your coverage to your specific needs. Property damage, unit owner coverage, injuries, and theft are all covered under the plans. Farmers also provide D&O insurance as well as optional riders such as an extended replacement cost option to supplement your base plan. Farmers is undoubtedly one of the top condo insurance companies, with all of this and more.
Kevin Davis Insurance Services (KDIS) specializes in insurance for community associations, particularly condominiums. Commercial umbrella insurance, D&O insurance, and criminal coverage are all included in the policies. Surprisingly, KDIS has cyber liability protection in the event of a security breach. The coverage covers regulatory fines, cyber extortion, and third-party claim defense, among other things.
Lemonade is still relatively new on the market, but it has already established itself. The appealing aspect of Lemonade is that it employs technology to make the process of HOA sign-up and claim filing easier. It includes an artificial intelligence-enabled smartphone app, and its base plans provide portable electronics coverage as well. You can also give a portion of your unused premiums to a charity of your choice.
State Farm has a number of policies tailored specifically for homeowner groups. Building coverage, D&O liability coverage, and employee dishonesty protection are among them. They even offer coverage for sewer and drain stoppages. Aside from that, State Farm automatically changes your coverage to match inflation.
To deal with rising risk, homeowner associations require more coverage. Not to worry, your State Farm agent will work with you to understand and satisfy your needs.
Who Pays for HOA Insurance?
Residents who are HOA members pay dues to live in the neighborhood. Some of that money is used for day-to-day operations, while some is saved for long-term repairs and improvements, and some is used to pay for HOA insurance.
How Does One Buy HOA Insurance?
Big insurance firms frequently sell virtually any type of coverage, including HOA insurance. However, due to the complexities of this sort of insurance, not all brokers can provide qualified guidance.
Assume a HOA board purchased a $1 million D&O policy. But after they were sued, they realized that the $1 million limit included the expense of legal services, which ended up costing about $1 million. As a result, each board member was required to pay around $100,000 in damages.
HOA board members should engage with an agent who properly understands the intricacies of this sophisticated type of insurance to ensure that the community and individuals are adequately protected. The simplest way to do so is to get prices from commercial real estate insurance providers. Here are a few examples:
- State Farm
Why Do You Need a Master Policy for Your Homeowners Association?
You need HOA insurance for security in the event that something goes wrong. Without HOA insurance, your association’s and your own finances could be jeopardized.
Assume a tourist is seriously injured after falling on an icy pavement. The subsequent lawsuit could deplete the HOA’s cash reserves, leaving the organization understaffed for current and future requirements. The HOA would then have to request a special assessment- more money on top of the dues each homeowner already pays – to replenish those reserves.