What is HOA insurance and what does it cover?
Just like you have an insurance policy for your home, your homeowners association (HOA) may have a master policy to financially protect against accidents that occur in common areas and property damage to HOA-owned property. HOA insurance is usually financed by HOA membership fees, which can also pay for things like lawn mowing, snow plowing and maintaining public spaces. Knowing where your policy technically ends and where the HOA insurance policy kicks in can protect your finances and prevent a future headache.
What is an HOA master policy?
Your HOA likely has a “master insurance policy,” which is coverage that your HOA buys to protect itself against insurance claims. However, the master policy does not only serve your HOA. It also helps protect you from having to cover the cost of liability expenses or repairs to common areas passed along to you in the form of special assessments.
HOA master policies typically cover two things:
- Property damage: The master policy protects the common areas much in the same way homeowners insurance protects a home. If a covered loss, like a fire or wind incident, damages a shared space for which your HOA is responsible, this portion of the policy could cover the repairs.
- Liability: Suppose someone slips by the pool and decides to sue your HOA. The fees associated with the lawsuit will likely be expensive, potentially so much so that member dues will not be enough to cover them in full. The liability portion of your HOA’s master policy helps protect you from a special assessment to cover the cost of defending your HOA in court. However, the coverage generally only applies to shared public areas, such as a lobby or community playground. It would not apply if a guest injures themselves within the walls of a homeowner’s living area.
HOA fees usually cover maintenance costs to help maintain the common areas of your neighborhood or building. Your HOA dues likely also help pay for the insurance policy. The policy payments are usually divided and each member within the HOA pays an equal fee towards the policy. However, the fees may be lower or higher depending on each member’s access to amenities and other features. If a HOA member does not pay the fees, the HOA could go through the collection process and file a civil suit against the homeowner. This may affect the homeowner’s credit score and future ability to buy a home or be approved for another large purchase.
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What is an HOA?
A homeowners association, or HOA, is an organization led by an elected leadership team that oversees and controls certain aspects of your condo, subdivision or other planned community. There are several components to HOAs that may affect homeowners both positively and negatively. Understanding these aspects might help you decide if an HOA community is the right choice for you.
Shared spaces
Many HOAs maintain shared spaces, like parks, playgrounds, pools and other amenities. The HOA is responsible for maintaining the spaces, which could include everything from cleaning to repair costs after a storm.
Community guidelines
HOAs also set rules that are designed to improve your community, like parking stipulations or guidelines on landscape maintenance. Your HOA might even have control over which color you can paint your home or condo, what outbuildings you can erect on your property or the number of pets you can have. Some HOAs provide security services, too. All in all, an HOA’s primary goal is to create a cohesive, safe, well-functioning neighborhood where you enjoy living.
HOA fees
To help the HOA in its goal, an HOA fee is usually assessed for each member. Paying HOA fees help keep your neighborhood and shared spaces well-maintained. The fees can also go toward the insurance premium for the master policy. The exact fee amount is determined by the HOA’s board of directors. The HOA fees may also cover maintenance and property cleaning fees, lobby or pool costs if your home or neighborhood has one, employee costs for keeping up these areas and more.
Special assessments
If unexpected expenses arise for your HOA that are not covered by your member dues, your HOA may pass that cost on to you in the form of a special assessment. Keeping your HOA insured may minimize your risk for special assessments, especially high-dollar ones. However, if your HOA finds itself short on funds, such as in the case of an expensive lawsuit, the excess costs may be charged to each homeowner — often split evenly.
What other insurance do I need if I live in an HOA?
While an HOA insurance policy will cover common areas maintained by your neighborhood’s HOA, it will not cover damage to your individual unit or home and private property. In order to have financial protection for your own home and personal property, you may want to purchase a homeowners insurance policy.
There are many types of homeowners insurance policies. The type of policy you choose will likely depend on your home’s characteristics. A home insurance policy is designed to financially protect you and your home from covered perils, while HOA insurance coverage is designed to financially protect the HOA’s liability and shared spaces.
HOA insurance vs. home insurance
If you own a home, most insurance professionals recommend you purchase a home insurance policy. A standard home insurance policy offers coverage for your home’s structure, other structures on your property, personal property, guest medical payments, liability coverage and additional living expenses. The covered perils will depend on the type of home insurance policy.
If you live in an HOA, your association likely also has HOA insurance. Your homeowner association insurance and your home insurance don’t overlap. Your home insurance company covers your home, while the HOA’s insurance company covers shared areas and the liability of the association. However, your policy’s loss assessment coverage, if you have it, may protect you from out-of-pocket costs if a loss exceeds your HOA’s master policy limit.
HOA insurance vs. condo insurance
When you own a home within an HOA, the lines between your homeowners insurance and your HOA’s master policy are pretty clear. You cover your house, and the HOA covers the shared spaces.
However, when you live in a condo, things may be more complicated because you technically only own part of the structure. You will likely be required to have condo insurance, which is also known as HO-6 insurance. Then, your condo association’s HOA policy will work in tandem with your condo insurance policy to provide coverage. However, not all condo associations work the same way, and there are a few different types of coverage that your HOA’s master policy may have:
- Bare walls coverage: This type of coverage from an HOA policy is the least robust and includes coverage for the exterior of your building like the walls, roof and studs inside your condo. No coverage is provided for any interior features that are used only by the homeowner, like the cabinets, sinks, fixtures or toilets. This type of coverage may also apply to infrastructure such as the electrical system or the plumbing.
- Walls-in coverage: Also called single-entity coverage, this is the most common type of coverage for an HOA to stipulate. This type of coverage provides for the exterior of the condo plus some basic interior features and fixtures that are included by the builder. This type of master policy includes coverage for your drywall, paint, flooring, cabinetry, built-in appliances and light fixtures. Any enhancements, improvements or renovations done by the homeowner would not be covered.
- All-in coverage: This is the most inclusive type of coverage provided by some condo associations. This type of policy takes walls-in coverage and adds coverage for a homeowner’s upgrades and enhancements. For example, if you remodel your kitchen and bathrooms, this type of association policy would cover your upgraded appliances.
For condo owners, understanding what type of coverage the association provides on its master policy may be vital. Think of condo insurance and HOA insurance coverage as a puzzle; you likely need to know what the HOA covers in order to build a condo policy that fills the gaps. For example, you may not require as robust of a condo insurance policy if you have walls-in HOA coverage.
I'm on the top floor of a condo, and we had some intense rains last winter that leaked into my ceiling. This was the first time I had to deal with something like this as a homeowner, so I was worried. The damage was inside my unit, after all. I thought maybe I’d have to pay at least a portion and deal with my home insurance. Hearing from the HOA that wasn’t the case was a relief! The HOA’s management company hired contractors to fix the leak and the damage (they had to rip off some of the ceiling and drywall).— Ana Staples, Bankrate Lead Credit Card Writer
Do you need loss assessment coverage?
HOA members can often add loss assessment coverage through their homeowners insurance policy. This coverage helps cover a portion of damage or loss in common areas so that you might avoid paying your portion of the expense out of pocket. For example, if a lawsuit is costly and exceeds the coverage limits of your HOA’s master policy, those additional costs may be spread among homeowners in the HOA. Loss assessment coverage may protect you financially from these costs.
Whether or not you need loss assessment coverage likely depends on your HOA’s organization structure, HOA features, potential perils in your region and more. Speaking with a licensed insurance agent may help you decide if this coverage is applicable for you.
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