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A homeowners association (HOA) is very much like a business. Homeowners elect board members to oversee the community. The HOA board handles day-to-day operations, maintenance, and repairs of common assets as well as the enforcement of bylaws and the collection of assessments. As a legal entity, it’s important to have an HOA insurance policy. It’s one of the ways you’ll be able to maintain your community and keep homeowners safe.
Why Do You Need an HOA Insurance Policy?
Having HOA insurance coverage helps protect everyone in the community. First of all, it provides financial protection to the board members. Since the board is primarily responsible for the overall well-being of the HOA, they could be liable for costs incurred when accidents or unfortunate events happen in a communal area.
For example, if a child is injured by malfunctioning equipment in the clubhouse, there will be medical costs, legal fees, and replacement costs, among others. Without an HOA insurance policy, the board will have to come up with the money themselves. A worst-case scenario is that the HOA has to use funds allocated for other projects.
This, in turn, will affect the lives of the homeowners. If the HOA runs out of money, the board might be forced to secure loans or levy special assessments. In both scenarios, homeowners will have to endure higher assessment fees.
That is why your HOA really needs an insurance policy. It provides financial security in case anything unfortunate happens on communal property.
Your HOA might still have to pay some costs, but it will be minimal compared to if there was no insurance policy. You’ll have peace of mind knowing that your community’s most valuable assets are protected from accidents, legal cases, security issues, etc.
Your HOA insurance policy, depending on its coverage, will cover most if not all the costs incurred. This goes a long way in making your community as safe and peaceful as possible. When picking out your HOA policy, don’t forget to go through all the homeowners association insurance requirements.
What Does HOA Insurance Cover?
There’s a lot of confusion when it comes to the coverage of HOA insurance policies. That’s because there is no single answer to this question. Your HOA policy will depend on several factors, including insurance laws of your state and your insurance provider. HOA insurance is also divided into types, which vary in terms of coverage level. You want to choose an HOA insurance policy that meets the needs of your community.
For example, a gated community with single-family houses will have different insurance needs compared to a high-rise condominium. With the former, there are a few shared spaces, but homeowners have personal insurance for their house and property lot. Condos, on the other hand, have more shared property including elevators, stairways, and walls, so the HOA insurance policy should cover all these areas.
Types of HOA Insurance Coverage
Here are the common types of HOA insurance policies that you might want to consider:
1. Master Policy
Most HOAs have a master insurance policy that includes property insurance and general liability insurance. Property insurance covers damages to shared spaces. This may cover roof repairs in the clubhouse following a typhoon or replacement of broken fitness equipment in the gym due to an accident.
General liability insurance covers any injuries sustained by a guest within the community’s shared spaces.
The master insurance policy provides decent coverage, but it is not a complete insurance plan. You need to analyze your master policy to see which scenarios are covered. You should also identify gaps that the master policy is unable to cover. There are other insurance types that can supplement your general HOA policy.
2. Comprehensive General Liability
Comprehensive general liability insurance covers scenarios that are not within the scope of the master policy. For example, if your HOA holds an event or meeting at an outside location, this insurance type may be able to cover the liabilities.
3. Comprehensive Equipment Coverage
As its name implies, this type of insurance has more comprehensive coverage for damaged equipment. You can get this type of insurance to cover property damage that is outside the scope of the master policy. Some insurance providers offer insurance for specific equipment, while others may offer a more general scope.
4. Catastrophe Insurance
Catastrophe insurance is useful if you live in an area that frequently experiences natural disasters. In these cases, the master policy might not cover property damage resulting from a hurricane, typhoon, earthquake, or the like.
Since the effects can be devastating, you might want to consider adding this to your HOA policy.
5. Discrimination Coverage
In every HOA, there will always be delinquent homeowners that are evicted from the community. In the event that an evicted homeowner makes discrimination claims against the HOA, this insurance type will offer protection and cover costs incurred.
6. Workers Compensation Coverage
The larger your community is, the more shared spaces there are. This also means that you will have to employ a large number of people. Thus, it can’t be avoided that certain injuries might happen while your employees are performing their duties. You can add this to your HOA insurance policy if you want protection from injury claims and other related costs.
7. Directors & Officers (D&O) Liability Insurance
Directors and officers of the HOA are the ones who assume responsibility for the HOA. They make decisions on behalf of the entire community.
In the event that they are accused of wrongful acts, such as breach of duty or misappropriation of funds, this insurance coverage protects them from personal liability. Intentional or willful wrongdoings are not covered by D&O liability insurance.
8. Crime and Fidelity Insurance/Employee Dishonesty Coverage
If an HOA board member commits a criminal act, such as check fraud or embezzlement, the crime and fidelity insurance will protect the HOA from any losses incurred. If the illegal act was committed by an employee, the employee dishonesty coverage will cover the money stolen. Thus, the HOA is not liable for this loss.
When choosing an HOA insurance policy, it’s good to consider all these coverage types and see which ones are right for your community. Make sure to fill any gaps so that the HOA is not held liable in case of an accident. At the same time, you also don’t want to have overlapping policies because that will lead to bloated assessment fees for the homeowners.
How Much Will an HOA Insurance Policy Cost?
The total cost for your HOA insurance policy will depend on the number of shared areas, the coverage level you need, and the terms of your insurance provider. Homeowners might pay anywhere between $500 to $1,500 on average.
This value might also go up or down depending on the claim rates. If there were higher claims the previous year, an insurance provider might charge higher premiums the following year. Rates can also increase for properties as the structures and equipment become older.
Every community needs an HOA insurance policy. It protects the HOA’s valuable assets in case of unavoidable events such as accidents or earthquakes. If your property is covered by an HOA policy, the board and homeowners won’t be liable for any damage or loss incurred.
If you are having trouble finding an HOA insurance policy, don’t hesitate to contact an HOA management company. Not only can they help you with insurance, but they also help with financial and other related matters.