What Is HOA Insurance? Your Complete Guide

HOA insurance is often misunderstood by homeowners and wonder how this insurance works and what does HOA insurance cover. After all, you need to be prepared for various circumstances your home may face, so you might as well arm yourself with some knowledge.

Let’s take a crack at it.

What is HOA?

Homeowners Association (HOA in short) is a membership organization operating for the benefit of the local community. It’s run by the board of directors elected by the residents who pay a fee in exchange for services. Their main purpose is maintaining common areas and enforcing rules that help preserve the appearance of small communities. 

Depending on their areas of operations, HOAs fall into two categories:

• Condo HOAs

Condo HOAs oversee the upkeep of a condominium building and the maintenance of common areas used by all tenants. Generally speaking, condo associations are allowed to set their own rules regarding the use of common areas. 

In terms of insurance, HOAs purchase insurance to cover the price of repairs to areas under their watch. Plus, they often buy liability protection for any injuries that may occur in areas used by all residents. 

Insurance policies are paid off from the funds collected by all the members. In most cases, all members of the HOA must pay an equal share of the policy since everyone has equal access to common areas. 

• Single-family home HOAs

These HOA organizations are in charge of maintaining a neighborhood’s aesthetics. They accomplish this by charging dues to all members for the maintenance of common areas. Plus, they are also responsible for overseeing the maintenance of community assets such as pools or parks. 

HOAs have specific rules that apply to all members. This may include requirements about certain visual features such as a particular color of roof shingles or exterior paint or even rules about certain types of mailboxes. 

How does HOA insurance work?

HOA insurance is typically referred to as a master policy. A master policy provides coverage for property damage occurring in shared spaces along with liability protection. Without it, HOA members would have to pay for these expenses out of pocket. 

Master policy for neighborhood HOAs covers neighborhood amenities under the governance of the HOA. With condo HOA policies, it’s a bit different as policies cover shared spaces like the lobby, elevators, stairwells, and hallways, along with the exterior walls and the roof of the condominium building. 

There are different types of condo master policies, but the most common ones are:

• Bare walls policy

This policy ensures the structure of the condo building and nothing within individual units (some policies also cover electrical and plumbing systems). However, a bare-wall policy may not cover injuries occurring in the common area. 

• All-in policy

As the name suggests, an all-in master policy covers the exterior building as well as interior elements such as plumbing, wiring, carpets, or appliances. Generally,  all-in policies don’t cover personal belongings such as clothes or furniture. 

What does HOA insurance cover?

Let’s go into more detail about what does HOA insurance cover. We must clarify that the particulars may vary from insurance provider, but this is the gist of it. 

Most HOA policies provide coverage for physical damage. In other words, the insurance will pay to replace or repair damage in common areas owned by the HOA. Condo HOA insurance policies also provide coverage that protects against damage to the building’s exterior and internal areas like basements and stairwells. 

In addition, insurance also provides coverage for damage that occurred due to acts of vandalism, fire, and natural disasters like hurricanes. 

HOA insurance also provides coverage for general liability. This means that the legal defense related to the association and any settlements in case of lawsuits due to injuries in common areas is covered. This is very important in cases where injuries occur in the areas governed by the HOA, such as someone suffering an injury due to slipping on an icy neighborhood sidewalk.

Naturally, the efficiency of the coverage will depend on your HOA policy limits. Otherwise, HOA may need to charge the association members in order to cover all the associated legal costs. 

What isn’t covered by HOA insurance?

HOA insurance policies can be very comprehensive. Still, they are not perfect and may not be enough to protect the association members in all scenarios. For instance, if someone suffers an injury on your property or inside your condo or house, HOA won’t cover any damages - physical or otherwise. 

Likewise, most HOA master policies don’t cover damage caused by natural disasters such as earthquakes or floods.

Here are some additional types of damage that are excluded from HOA insurance:

• Physical damage to your property
• Physical damage on the interior of your unit
• Damaged or stolen personal property
• Damage in shared areas caused by earthquakes or floods
• Liability damage you’re personally responsible for
• Claims exceeding policy limits

It’s also worth noting HOA insurance likely won’t cover personal property stolen in one of the common areas. Since your personal property is your own responsibility, if you want to recover compensation, you’ll have to file a claim with your condo or homeowners insurance provider. 

Similarly, if your car is stolen from one of the community areas, you must turn to your car insurance company to cover the damage.   

The bottom line

Now you know what does HOA insurance cover. Use this information to purchase policies that can ensure you’re protected regardless of the circumstances. 

While HOAs are required by laws to carry insurance, these policies are often limited in what they offer. Furthermore, it’s not uncommon for HOAs to have insufficient coverage, which may cause certain problems later down the line. 

All in all, it’s simply too risky to rely on HOA insurance. 

Note: 

The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.