An HOA liability insurance is essential. It protects your homeowners’ association against liability claims. But what if you don’t have shared spaces in your HOA? Do you still need the insurance?
What Is HOA Liability Insurance?
An HOA liability insurance is a policy that protects associations from liability claims. What does HOA liability insurance cover? There are two types that HOAs can get:
- Regular Liability Insurance. This covers liability costs related to injuries people may suffer in a common area. For example, your HOA may be held responsible when someone slips on a common area’s wet floor. This covers the costs your HOA may need to pay as a result.
- HOA General Liability Insurance. This covers common area property damage, building protection, and structure protection. It can protect the property from different perils like wind, water, fire, vandalism, and crime.
For both of these, the policy only covers common areas and properties. Moreover, the HOA must own or be responsible for maintaining said properties. It does not cover property that belongs to homeowners or residents.
Is It Different From HOA Insurance?
An HOA insurance policy, or master policy, helps HOAs reduce financial risk. This insurance policy is usually helpful for shouldering liability claims and property damages.
HOA insurance coverage can also include other things. For instance, it may protect board members from legal claims made against them. Moreover, it may even include HOA liability insurance covering vendors and employees.
Meanwhile, liability insurance is part of an HOA insurance policy’s basic coverage. Homeowners’ associations can keep or remove it, depending on the HOA’s wants and needs.
Do You Still Need Liability Insurance Without Common Areas?
A homeowners’ association still needs liability insurance even without common areas, but why is that?
It’s easy to want to forego HOA liability insurance. This is especially tempting if you don’t have public facilities like clubhouses, pools, or gyms. After all, there’s no property to protect from damage. Moreover, without these facilities, people can’t hold your HOA responsible for injuries.
But common areas aren’t limited to these amenities. That’s because any space that residents share is considered a common area. These include spaces and properties as simple as roads and mail facilities. In a condominium, these can also include public stairwells, elevators, and hallways.
With HOA liability insurance coverage, you can protect your property from natural disasters. These include things like hailstorms, fires, and earthquakes.
You also don’t have to pay as much legal expenses when someone has an accident. The insurance policy will cover the cost of damages as well.
Additionally, some states require HOAs to have insurance against liability and property damage. For example, Arizona and West Virginia have certain liability insurance requirements. They mandate communities to have insurance for common property damage and liability.
Overall, liability insurance is an effective way to lessen your financial burden whenever accidents happen in the community. Otherwise, you may need to tap into your reserve funds to cover the expenses. The cost of repairs, liability, and HOA attorney fees can be more expensive in the long run.
Are They the Same in Condominiums?
Both homeowners’ associations and condominium associations need liability insurance. But, an HOA policy insurance for a condo will differ slightly in how it works.
That’s because the lines that divide resident and HOA-owned property aren’t as clear. Often, they’re only separated by walls.
As such, insurance companies may offer different policy options for condominiums. These include the following:
- Studs-Out Coverage. This option covers parts of the condominium outside a homeowner’s unit. These include roofs, stairways, hallways, lobbies, and elevators. It does not cover the walls, fixtures, and flooring within units. The homeowners will be responsible for insuring those interior elements.
- All-In Coverage. This option protects both shared facilities and structural elements within residential units. Hence, homeowners will only need to insure their property inside their homes.
What Are the Limitations?
While liability insurance generally covers common areas against perils, there are limitations. For example, some policies do not cover floods. Thus, an HOA may need to purchase a separate property insurance policy to protect against flooding.
With that said, it’s important to read the insurance policy thoroughly. If a policy doesn’t cover everything you need, you may want to add coverage through other policies.
Moreover, liability insurance does not cover fidelity insurance. The latter is a type of insurance that covers HOA property, but it’s distinct because it doesn’t protect you from perils like natural disasters. Instead, it protects HOA property from immoral or dishonest actions made by board members and employees.
How Much Is It?
Insurance policies like these vary greatly in terms of cost. It usually depends on how large the HOA is and how many facilities it has. Larger communities with more amenities can expect to pay more. Meanwhile, smaller communities have less to pay for. They may only need to insure the basics like roads and walkways.
Also, insurance companies will evaluate other elements of the HOA to determine the price. They will review the number of residents, environment, and facilities within the community.
Typically, HOA policies that cover liability insurance can cost anywhere between $50 to $100 monthly. This is the price for small associations. Thus, an average HOA may pay up to $1,200 yearly.
Who Pays for It?
Each community resident, including board members, pays premium dues to the HOA. This is part of the monthly dues and will cover the cost of the liability insurance.
Furthermore, each resident will pay the same amount to the HOA. This holds true if everyone has equal access to the shared facilities. It applies regardless of how often each homeowner uses those shared spaces.
HOA Liability Insurance: A Necessary Inclusion
Having no shared spaces may make HOA liability insurance seem unnecessary. But it’s essential even if you don’t have pools or clubhouses. That’s because it also covers standard common areas like walkways and roads.
Tracking insurance policies and payments may be difficult for HOAs. You can make this process easier by using Condo Manager. Get in touch with us at 800-626-1267 or contact us online to schedule a free demo!