There are many HOA insurance policies homeowners associations need to protect themselves. But, it can be challenging to know which ones your association needs to function. Not everything is essential. Regardless, there are a few insurance policies every association should get to keep themselves covered.
Important HOA Insurance Policies
There are many types of policies homeowners associations can get. Here are some of the most important ones to keep in mind.
1. HOA Master Insurance Policy
The master insurance policy is the most basic type of homeowners association insurance that covers all the general requirements. Sometimes, the master insurance is also called HOA Insurance. It also includes your General and Regular Liability Insurance. The master insurance policy typically covers two things:
- Property damage to your HOA’s common areas and structures due to crime, water, fire, or vandalism
- Liability expenses that others may hold the HOA liable for
Through this HOA hazard insurance policy, you can cover the cost of repairs to the property when something unexpected happens. For instance, flooding is one of the most common natural disasters in the US. When a flood damages your HOA’s shared spaces, the policy can fund the repair costs. It often acts as your HOA fire insurance policy to cover fire damage.
Apart from this, the master policy also provides liability coverage. This is useful for when third parties blame the HOA when they sustain injuries or property damage within the premises. It covers legal fees, attorney fees, medical expenses, and monetary damages the HOA needs to pay.
The amount your HOA needs to cover for liability will vary based on location. For instance, the Civil Code Section 5805 in California requires at least $2 million in protection for HOAs with separate interests less than or equal to 100. That amount can reach up to $3 million if your HOA has over 100 separate interests.
Are the Master Insurance and Special Assessment Insurance the Same?
A master insurance policy is distinct from an HOA special assessment insurance policy. While both of these insurance policies may cover issues with common area property damage, they are not the same.
Special assessment insurance, also called loss assessment coverage, mainly helps the homeowner, not the HOA. It covers the cost of special assessment fees the HOA may collect from homeowners when the master policy can’t cover everything.
For example, the HOA’s master insurance policy may cover only $1 million. But, the cost of repairs from property damage will amount to $2 million. The HOA will have to levy special assessment fees from homeowners to pay for the rest. Homeowners may not need to pay the additional fees if they’re insured with a special assessment policy.
2. D&O Liability Coverage
Directors and Officers (D&O) liability insurance is among the most important HOA insurance policies. It essentially protects the board of directors from various lawsuits and settlements against them.
The HOA board can cover defense expenses, omissions, errors, and indemnity liability claims through it. These usually happen when the board violates contracts or governing documents. The insurance policy also covers discrimination, libel, and slander.
3. Property Value and Replacement Cost
Your homeowners’ association insurance coverage should also include property value and replacement costs. This covers the partial or full replacement of your building or structure. The insurance policy has three coverages this type of policy includes:
- Contingent Liability. Some states may require you to demolish all parts of a property, including undamaged ones, to rebuild the structure. This covers the undamaged portions, so your HOA does not need to shoulder the expense.
- Demolition. This covers the cost of demolition, including those involving heavy machinery.
- Increased Cost of Construction. Local ordinances may require necessary upgrades to your property. This covers the expenses of those upgrades.
4. Workers’ Compensation and Employee Dishonesty Insurance
Many HOAs employ workers to keep the community in good shape. In such cases, it’s vital to have Workers’ Compensation and Employee Dishonesty Insurance. That’s because this policy protects the HOA from lawsuits if a worker sustains an injury while working. It also covers theft and the damage any workers may cause to the property. The policy covers employees whether they’re contractual, part-time, or full-time workers.
5. Discrimination Claims Coverage
Homeowners’ associations may sometimes foreclose properties because of unpaid dues. They can do this regardless of whether the resident is part of a minority group or has a protected status. However, some homeowners may still try to hold onto their homes by filing a discrimination claim against the HOA.
This is why you may need Discrimination Claims Coverage. Through this policy, you can protect your HOA from claims related to discrimination while foreclosing properties.
6. Commercial Umbrella Policy
Many HOA insurance policies have limitations. If you want to go beyond these limits, you can also purchase Commercial Umbrella Liability Coverage. This helps you stay protected when your D&O or Workers’ Compensation policy can’t cover the costs. The umbrella may also expand your coverage on other policies.
Of course, you could simply extend the limit on your current policies. But, doing so may be costly for your HOA. A Commercial Umbrella Policy is usually more affordable, so many HOAs prefer it over extending other policies.
7. Condo Insurance
Condominiums may need HOA Condo Insurance instead of the standard HOA master policy. This is because figuring out the boundaries between common areas and individual units is more complicated in condos. Condo Insurance can offer more specific protection. It has two main types:
- Bare Walls Coverage. Only walls divide condominium units. As such, maintenance insurance can be a little trickier. A Bare Walls insurance policy insures your condo’s walls, insulation, plumbing, and wiring.
- All-in Coverage. This extends the Bare Walls policy by also covering installed fixtures like appliances and countertops.
Protect Your HOA With Insurance
HOA insurance policies protect both your HOA and its community members from any potential financial burdens. They cover expenses when an unexpected disaster happens and can lower your HOA charges’ special assessments. Hence, they’re essential to keeping your HOA running seamlessly throughout the year.
Tracking your insurance policies manually can be exhausting. It’s also prone to error, especially if you purchased many policies. Condo Manager can help automate and streamline the process. Call us at 800-626-1267 or get in touch with us online today!
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