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HOA 101: Understanding HOA Insurance

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When unforeseen events cause injuries or damage on community grounds, the best way to protect homeowners is to have well-rounded and comprehensive homeowners’ association (HOA) insurance coverage. However, insurance needs vary from one HOA to the next. Finding the right HOA insurance policy for your association will depend on several factors, including your community’s size, amenities, and services offered.

Read on to learn what Jake Gillespie and Tyler Schlapkohl, sales executives at Associations Insurance Agency, Inc. (AIAI), have to say about homeowners’ association insurance and the types of coverage to consider for your community.

What Is HOA Insurance?

Like other types of insurance policies, HOA insurance or condo association insurance serves as a safety net should something go wrong on community property. The purpose of HOA insurance coverage, which is also referred to as the “master policy,” is to protect association members from liability if there’s an accident, injury, or damage in shared spaces.

Your HOA’s governing documents should have details on HOA insurance requirements, including the minimum coverage for the association. However, it’s essential to consider the needs of your community when looking for the appropriate insurance coverage.

What Does HOA Insurance Cover?

Homeowners’ association insurance will generally cover property damage and liability expenses, ensuring homeowners don’t need to cover these costs themselves.

Property damage. HOA insurance provides coverage for expenses related to structural damage in common areas, including repairs after an accident, fire, or vandalism. Still, some policies don’t cover damage caused by natural disasters or seasonal weather. You may need to add that coverage separately to confirm your HOA is protected from those costs.

General liability. HOA insurance also covers liability expenses for the association. If someone has an accident or is injured in shared community areas, HOA insurance may cover the cost of legal defense, settlements, and other expenses.

Read “How to Find The Right Lawyer For Your Community” for tips on how to find a good HOA attorney.

HOA insurance only extends to common community areas and doesn’t cover a homeowner’s personal property. If residents want financial protection for their home or condo and their belongings, they must purchase home insurance, condo insurance, or HO6 coverage individually.

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5 FAQs from HOA Communities

While it’s the board’s responsibility to find the best insurance coverage for their community, it can feel overwhelming if you don’t know what you need. To help, Jake Gillespie and Tyler Schlapkohl share answers to five commonly asked questions about HOA insurance.

  1. Is our HOA board covered under our liability policy?

JG: There’s specific liability insurance for board members called Directors and Officers (D&O) coverage. D&O coverage protects board members from being personally sued for alleged or actual wrongful acts in running the HOA. Board directors can be sued for several reasons related to their roles. Some of the reasons, or wrongful acts, include:

  • Failure to follow bylaws
  • Discrimination
  • Libel/slander
  • Wrongful eviction
  • Breach of contract

In the case of injury, your liability policy will likely offer limited coverage in the event a board member is injured—regardless of who was at fault. However, your liability policy should provide full coverage for an injured board member if the association’s negligence led to the injury.

  1. Should our HOA carry crime coverage?

TS: Yes, crime coverage is something every HOA board should consider. In fact, many states require HOAs to carry these types of policies. Crime coverage shields HOA funds from situations like:

  • Check fraud
  • Wire fraud
  • Embezzlement
  • False invoices
  • Computer fraud

Although your HOA management company will have its own crime and fidelity insurance policy, it will not cover fraudulent activity outside of the company’s system. Having your own HOA crime coverage adds an extra layer of protection to the association’s finances.

Security is just one aspect of maintaining your community’s financial stability. Proper budgeting is another. Read “The Beginner’s Guide to HOA Budgets” to learn more.

  1. Does our HOA insurance cover sporting events and other athletic competitions?

JG: Most HOA general liability policies don’t cover organized sporting events or competitions held on community grounds. If your HOA plans on hosting or sponsoring sporting events that allow non-members to enter the community to participate or compete on the premises, your HOA policy will most likely not apply to any injuries. Examples include:

  • Tennis tournaments
  • Soccer games or scrimmages
  • Swim meets
  • Pickleball tournaments
  • Any other planned sporting event

Nonetheless, HOA insurance does cover association members who are using community amenities for their own use in the facility’s intended way. Consult your HOA attorney or insurance agent for more details on what your policy covers.

  1. How do we determine our community’s total replacement cost?

TS: Replacement cost value is the amount of money needed to repair or replace community structures at today’s prices of building supplies. You should work with a licensed third-party appraisal professional to get your association's accurate total replacement cost. While real estate appraisals and reserve studies may offer some insight into your community’s replacement cost values, they aren’t intended to replace a comprehensive insurance appraisal.

Qualified appraisal firms use dedicated technology and software to calculate an HOA’s total replacement cost value. The results are usually guaranteed for several years, making the initial cost worth the investment.

  1. Why does my HOA need workers’ compensation coverage?

JG: Workers’ compensation (WC) coverage is a benefit that pays for the medical care of employees who are injured or become ill from their workplace. If your association doesn’t directly employ workers, you might assume you don’t need WC coverage. But, failing to invest in WC insurance can cost you if you hire a contractor who is uninsured or has lapsed insurance.

Even if a contractor presents a certificate of insurance, they may not have active coverage at the time. If one of the contractor’s employees is hurt while working on HOA property, the association could be held liable for damages if you don’t have a WC policy. Your HOA insurance agent can share affordable WC pricing and how you can add it to your current coverage.

HOA Insurance FAQs for Beginners

Understanding the fundamentals of HOA insurance will help you secure a comprehensive policy that protects the board and homeowners from financial liability when the unexpected happens. Check out our ebook, “HOA Insurance FAQs for Beginners,” to learn more about homeowners’ association insurance and why your HOA needs it.