Insurance Guide

HOA : Homeowner Association insurance

Honeycomb staff
Oct 10, 2021

Protect your homeowners association against the threat of property and liability claims with homeowners association insurance. Honeycomb specializes in providing dedicated insurance for HOAs. Coverage is available for buildings and common areas and can provide essential protection against many kinds of losses. We offer top-rated coverage, competitive rates, simple policy management and superior customer service. 

What is an HOA? 

According to Investopedia, a homeowners association, or HOA, is an organization that enforces rules and guidelines for a subdivision, planned community or condominium building. The homeowners are the members, and they are usually required to pay dues. The HOA can protect property values and keep communities nice by enforcing rules, and members who violate the rules may be charged fines. The board of directors is in charge of carrying out HOA responsibilities, and the HOA fees can be used to cover the costs of upkeep and insurance. 

The term condominium owner association (COA) is sometimes used to describe an HOA for a condominium building. 

What does HOA insurance cover?

HOA insurance provides two key safeguards: property insurance and HOA liability insurance.

  1. Property coverage applies to the shared structures and common areas. For example, in a condominium building, the roof and outer walls are shared structures. Common areas, such as the entrance and halls, as well as pools, playgrounds, gyms and other shared spaces, are also shared. If property damage occurs in these shared spaces, and if the property damage is caused by a covered peril, the HOA insurance policy will help pay for the repairs, up to the policy limits. Common covered perils include fire, wind, hail and accidental water damage.
  2. Liability coverage provides protection against third-party general liability claims. A common scenario involves a guest who is injured in a shared space, for example, in the entrance area. The HOA may be held responsible for the injury it did not fix a broken step, did not provide adequate lighting or failed to provide necessary handrails and warning signs. In this situation, liability coverage can help pay for the medical costs of the injured party and legal expenses if the injured party sues the HOA.

What do HOA insurance policies usually not cover?

An HOA insurance policy provides coverage for many common risks that HOAs face. However, certain things are typically excluded, such as:

  1. The property owned by individual homeowners or condo unit owners. The HOA insurance policy covers shared property. It does not cover property owned by the individual homeowners. Personal belongings, such as furniture, electronics, clothes and jewelry, are not covered by the HOA policy. Additionally, structures that are considered to be individually owned may be excluded from the HOA policy. In a community consisting of single-family homes, the individual homeowners are responsible for buying homeowners insurance to cover their personal belongings, including dwelling coverage for their house. In a condominium building, the line between shared property and individual property is not always as clear, and different HOA policies approach this line in different ways. However, individual condo unit owners are still responsible for purchasing their own condo insurance coverage.
  2. Certain perils. A standard property insurance policy typically covers certain perils, such as fire, burst pipes and wind damage. However, certain other perils are typically excluded. For example, floods, earthquakes, pest infestations, war, nuclear events and losses caused by normal wear and tear are not usually covered. Coverage for some of these perils, such as floods and earthquakes, may be available as a separate policy. Excluded perils can vary from policy to policy and with different HOA insurance companies, so review your policy terms for details.
  3. Equipment breakdown. The filtration system in your community pool suddenly stops working. The elevator in your building breaks. Your AC goes out. Unexpected equipment malfunctions are not covered in a standard property insurance policy, but coverage may be available as an add-on or additional policy.

HOA insurance coverage vs homeowners insurance 

Homeowners insurance and HOA insurance are two different things. Homeowners insurance covers the home itself and the belongings inside, while HOA insurance covers the common areas of a community, like the pool or clubhouse. The HOA policy will not cover the property owned by individuals, and association insurance will not cover the HOA risks, so it’s imperative that both types of policies are in place.  In an HOA or COA situation, two types of insurance policies are needed:

  1. The association needs coverage to protect against property damage or liability claims that occur in the shared areas – such as the club house and swimming pool.
  2. Each individual homeowner also needs their own personal homeowners insurance or condo insurance policy to cover their own property. 

HOA master insurance policy 

When describing HOA insurance, the term “master policy” is often used. The master policy is the same thing as the HOA insurance policy – it’s just a different way of referring to it. The HOA master policy is the policy that is owned and maintained by the HOA. It covers the shared property and common areas as well as the HOA’s third-party general liability, and it’s the type of policy that Honeycomb Insurance provides. 

The term “master policy” can be helpful because it infers that there is a need for more than one type of insurance policy. The HOA or COA purchases the master policy. However, the individual members still need to purchase their own homeowners insurance or condo insurance policies to cover their own property. 

Three types of HOA condo insurance 

There are three distinct types of HOA insurance policies, and the differences are important for HOA board members to understand when managing HOA insurance. Although it’s always important for the HOA to have a master policy and the individual owners to have their own policies, exactly what is covered by which policy depends on the type of policy. 

For example, if the cabinets are damaged in a fire, does the HOA master policy or the individual homeowners policy cover the cost of repairs? The answer will depend on the type of HOA insurance policy in place. To avoid coverage gaps or coverage overlaps, everyone needs to be on the same page regarding the type of master policy that the HOA has purchased so that coverage can be coordinated.

There are three basic types of HOA master insurance:

Bare walls in coverage 

This type of master policy provides the least amount of coverage, meaning it will cost less but the individual unit owners will need to purchase more coverage. Bare walls in coverage provides coverage for the drywall, insulation and studs.

Single-entity coverage

This type of master policy provides a medium amount of coverage. Single-entity coverage provides coverage for the outside of the walls, the cabinets, and bathroom fixtures and the top flooring.

All-in coverage

This type of master policy provides the most coverage, so it will cost more but the individual unit owners will not need to purchase as much coverage on their own. All-in coverage provides coverage for built-in appliances and may even provide coverage for improvements. Note that individual unit owners will still need to purchase their own insurance coverage to protect their personal belongings, such as their furniture, electronics, kitchenware and clothing.

Insurance coverage types to add on 

Because the HOA collects dues to manage its projected expenses, unexpected expenses can be a big problem for HOAs. Adding additional coverages to your HOA master policy can help you avoid issues. There are several important coverage add-ons or additional policies to consider, including:

ABC coverage

When you rebuild after a loss, you may incur additional expenses not covered under a standard policy. Ordinance or law coverage provides three types of coverage to help with these expenses. Coverage A helps pay for repair to the part of the structure that was damaged. For example, if you roof was damaged, this helps pay for repairs to the part of the roof that was damaged. Coverage B helps pay to replace the entire element. For example, if only part of the roof was damaged but the entire roof has to be replaced as a result, this helps pay to replace the entire wall. Coverage C helps pay to upgrade the wall to meet building code requirements. 

Directors and officers liability insurance

The people who serve as directors and officers can face personal liability for the actions they take. D&O insurance provides liability protection for the board members.

Employment practices liability insurance

If your HOA has employees, you should consider employment practices liability insurance to protect against employment related lawsuits. 

Equipment breakdown

Mechanical malfunctions are not covered under a standard property insurance policy. However, equipment breakdown coverage can be purchased to cover sudden and unexpected malfunctions.

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