Just like you have insurance for your home, your homeowners association (HOA) may have a master policy to provide financial protection against accidents that occur in common areas and damages to HOA-owned property. HOA insurance is typically funded through HOA dues and covers expenses like mowing, snow removal, and maintenance of public spaces. Knowing the technical limits of your insurance and the extent to which your HOA insurance will cover you can protect your finances and prevent headaches down the road.
What is an HOA Master Policy?
Your HOA likely has a “master policy,” which is coverage your HOA purchases to protect itself against insurance claims. But master insurance doesn’t just help your HOA. It can also help protect you from having to pay damages levied against you in the form of special assessments or repairs to common areas.
An HOA master policy typically covers two things:
- Property Damage: The master policy protects common areas in much the same way that homeowners insurance protects your home: If a covered loss, such as fire or wind damage, damages the common areas for which the HOA is responsible, this portion of the policy can cover the cost of repairs.
- responsibility: Let’s say someone slips in the pool and sues your HOA. The costs associated with a lawsuit would likely be high, and member dues alone may not cover the full amount. The liability portion of the HOA’s master policy can help protect you from special assessments to cover the costs of defending the HOA in court. However, coverage typically only applies to shared public areas, like lobbies and community playgrounds. It doesn’t apply if a guest is injured within the walls of a homeowner’s living area.
HOA dues typically cover the maintenance costs of maintaining the neighborhood and the common areas of the building. HOA dues likely also help pay for insurance premiums. Insurance premium payments are usually split, with each member in the HOA paying an equal rate for the premiums. However, rates may be lower or higher depending on each member’s access to amenities and other features. If HOA members don’t pay their fees, the HOA may initiate collection proceedings and file civil lawsuits against the homeowner. This could affect the homeowner’s credit score and ability to buy a home in the future, or be approved for another large purchase.
What is an HOA?
A homeowners association (HOA) is an organization led by an elected leadership team that oversees and manages certain aspects of a condominium, subdivision, or other planned community. There are several elements of an HOA that can have both positive and negative effects on homeowners. Understanding these aspects may help you decide if an HOA community is the best choice for you.
Shared Space
Many HOAs manage shared spaces like parks, playgrounds, pools, and other amenities. The HOA is responsible for maintaining the spaces, which includes everything from cleaning to paying for repairs after a storm.
Community Guidelines
HOAs also set rules designed to improve the community, such as parking regulations and landscaping maintenance guidelines. HOAs might even control the paint color your home or apartment can be painted, what outbuildings you can build on your property, and the number of pets you can have. Some HOAs even provide security services. Overall, an HOA’s main goal is to create a neighborhood that is livable, cohesive, safe, and functional.
HOA Fees
To help the HOA achieve its goals, HOA fees are usually assessed to each member. HOA fees help keep neighborhoods and common spaces in good condition. They may also help cover the premiums on a master policy. The exact amount is determined by the HOA board. HOA fees may also include maintenance fees, property cleaning fees, fees for a lobby or pool if your home or neighborhood has one, and employee fees for maintaining these areas.
Special Recognition
If an HOA incurs unexpected expenses that cannot be covered by membership dues, the HOA may pass those costs on to its members in the form of special assessments. Having HOA insurance can help minimize the risk of special assessments, especially large ones. However, if the HOA runs out of funds (for example, because of a costly lawsuit), excess costs can be passed on to each homeowner, often split equally.
What other insurance do I need if I live in an HOA?
HOA insurance covers common areas maintained by your neighborhood HOA, but does not cover damage to individual units, homes, or personal property. To financially protect your own home and personal property, we recommend purchasing homeowners insurance.
There are many types of homeowners insurance. The type of insurance you choose will depend on the characteristics of your home. Homeowner insurance is designed to financially protect you and your home from covered perils, while HOA insurance is designed to financially protect the HOA’s liabilities and shared spaces.
HOA Insurance and Home Insurance
If you own a home, most insurance professionals recommend that you purchase home insurance. A standard home insurance policy covers the structure of your home, any other structures on your property, your personal possessions, medical expenses for guests, liability insurance, and additional living expenses. The perils covered vary depending on the type of home insurance policy.
If you live in an HOA, your association likely also has HOA insurance. Your association insurance and your home’s insurance do not overlap: Your home’s insurance company covers your home, and the HOA’s insurance company covers common areas and association liability. However, your insurance’s loss assessment coverage (if you have it) may protect you from out-of-pocket expenses if losses exceed the limits of the HOA’s master policy.
HOA Insurance and Condominium Insurance
If you own a home in an HOA, the line between your homeowners insurance and the HOA’s master policy is very clear: you cover your home, and the HOA covers the common spaces.
However, if you live in a condominium, things can be more complicated because you technically only own part of the building. You’ll likely need to purchase condominium insurance, also known as HO-6 insurance. Your condo association’s HOA policy will then work in conjunction with your condo insurance policy to provide coverage. However, not all condo associations work the same, and there are several types of coverages that may be included in your HOA’s master policy.
- Bare Wall Coverage: This type of coverage in an HOA policy is the least robust and covers the exterior of the building, such as the walls, roof, and studs inside the apartment building. It does not cover interior fixtures used only by the homeowner, such as cabinets, sinks, fixtures, toilets, etc. This type of coverage may also apply to infrastructure such as electrical systems and plumbing.
- In-wall coverage: Also known as single entity coverage, this coverage is the most common type of coverage provided by HOAs. This type of coverage covers the exterior of the condominium, as well as the basic interior fixtures and fittings installed by the builder. This type of master policy includes coverage for drywall, paint, floors, cabinets, built-in appliances, and lighting fixtures. It does not cover improvements, modifications, or renovations made by the homeowner.
- All-in-one Coverage: This is the most comprehensive insurance offered by some condo associations. This type of insurance covers what’s inside your walls, plus it adds coverage for homeowner upgrades and improvements. For example, if you’re renovating your kitchen or bathroom, this type of association insurance will also cover the appliances you upgraded.
It’s important for condo owners to know what type of coverage their association offers in their master policy. Think of condo insurance and HOA insurance as a puzzle. You’ll need to know what your HOA covers to create a condo policy that fills in the missing pieces. For example, if you have wall-to-wall HOA coverage, you may not need as robust condo insurance.
I live on the top floor of an apartment building and we had a lot of rain last winter and my ceiling leaked. This was the first time I’ve had to deal with something like this as a homeowner and I was worried. The damage ended up being inside my apartment. I figured I might have to pay at least some of it and have my home insurance handle it. I was relieved to hear from the HOA that this was not the case. The HOA management company hired a contractor to repair the leak and damage (they had to rip out part of the ceiling and drywall).
— Ana Staples, Chief Credit Card Writer at Bankrate
Do I need loss assessment coverage?
HOA members can often add loss assessment coverage through their homeowners insurance. This coverage can help cover a portion of damages or losses to common areas and avoid out-of-pocket expenses. For example, if legal expenses are high and exceed the coverage limits of the HOA’s master policy, the additional costs may be shared among the homeowners in the HOA. Loss assessment coverage protects you financially from these costs.
Whether or not you need loss assessment coverage will depend on your HOA’s organizational structure, the characteristics of your HOA, potential hazards in your area, etc. Consulting with a qualified insurance agent can help you determine if this coverage applies to you.
