What is a Homeowners Association (HOA) Insurance Policy?

If you live in a development that has a Homeowners association (HOA), you already know they are designed to maintain the shared community parks, playgrounds and even swimming pools. However, a HOA comes with a fee that can be monthly, quarterly or even yearly. These HOA fees are used to cover repairs or upgrades to the community as well as more mundane expenses such as HOA insurance.

HOA insurance helps your HOA protect itself against property damage and liability risks. As an example, if a broken playground swing is broken and a child ends up getting injured, they HOA may end up on the wrong end of a lawsuit. HOA insurance will help cover the medical and legal costs that arise from the incident. Let’s have a quick look at what an HOA is and how a HOA master policy can help.

What is an HOA?

An HOA or a homeowners association is simply an organization that is elected by the homeowners in the building or subdivision that oversees and controls some aspects of your condo, subdivision or other HOA community. 

The HOA typically maintains shared spaces in the community. Cleaning the pool, maintaining playgrounds, and repairing any property damage are typical responsibilities of the HOA.

In addition, HOA’s usually set up the rules and guidelines for the community. This can range from approved paint colors for homes in the community to whether you can have a pet. HOA’s are funded by the HOA fees it collects from each member of the community. In addition to maintaining your community, HOA fees pay for the master policy and other insurance policies the board deems necessary. 

Helpful Article: How to Deal with Changes in HOA Requirements

What is an HOA master policy?

Most (if not all) HOA’s carry a “master insurance policy,” which is the policy that your HOA carries to protect itself and unit owners from liability claims due to injuries that happen in the building. While it protects both the building and the HOA, it also helps unit owners avoid expenses related to common areas. 

A HOA master policy will cover a couple of different issues:

• Property damage: An HOA master policy provides protection for property damage, just like a homeowners policy does for homeowners. If the common areas of the building are damaged by wind, fire or another covered peril the HOA master policy would step up to cover the cost of the repairs. 
• Liability issues: The master policy also covers liability issues. If someone falls down a staircase and decides to sue your HOA, the master policy will cover medical and legal bills up to the policy limits. 

Your HOA fees help cover maintenance to the common areas of the building and grounds. It typically covers costs such as pool cleaning and maintenance as well as the cost of any employees that perform the property maintenance. In addition to these costs, your HOA fees help pay for the HOA master policy. 

The HOA typically has the authority to enforce payment of the HOA fees. Homeowners that refuse or fall behind on their HOA dues may find themselves sent to collections or even sued for the dues.

What is a special assessment?

Unexpected expenses that are not covered by member dues may result in those costs being passed onto members via a special assessment. As an example, if the elevator in the building breaks down and the cost to repair it exceeds the HOA funds, a special assessment may be issued to HOA members. A special assessment can range from a few hundred dollars to tens of thousands if the damage or repairs are extensive. 

What is loss assessment coverage?

While it can vary by insurance company, HOA members can usually add loss assessment coverage via their homeowner or condo insurance policy. This coverage is rarely required but it can be a financial lifesaver if you end up with a large assessment. This coverage will step up to help pay your portion of any assessments that crop up. 

What is the difference between HOA insurance and homeowners insurance?

Even though your HOA is carrying a master policy, you still need to carry homeowners or condo insurance to protect your home or condo. Your homeowners or condo policy will cover your specific home or unit as well as your personal property. 

Your policy is specific to your property and does not overlap coverage with the HOA master policy unless you are carrying loss assessment coverage which will step up to help cover the cost of any assessments you receive from the HOA.

Condo insurance is a bit different

While a homeowners policy will protect your home and doesn’t really overlap with a HOA master policy, that is a bit different if your home is a condo. A condo tends to be a bit more complicated since you only own part of the building. 

A condo policy or an HO-6 policy will work with HOA’s master policy to rebuild or repair after an incident. There are a few different HOA master policy types and each one provides a different type of coverage. Here is a quick overview:

Bare walls coverage: This type of HOA master policy is pretty bare bones. It will cover the exterior of the building including the walls, roof and studs inside each individual unit. However, it doesn’t cover any interior features in your condo, excluding items such as sinks, toilets and even cabinets. 

Walls-in coverage: This is the most common coverage for an HOA to carry. It covers the exterior of the building as well as some interior features that would have been included by the builder when the unit was built. These policies typically cover drywall, cabinets, paint, flooring, light fixtures and any built-in appliances. Any improvements you have made are not covered. 

All-in coverage: This is usually the most robust coverage that a condo association can provide. This policy expands on the walls in coverage by including any improvements you have made as well as upgraded appliances. 

Always make sure you have a clear understanding of what type of master policy your HOA is carrying so you can supplement that coverage with your own homeowners or condo policy.