Many board members and residents wonder why it is important to have proper homeowners association insurance. Having the right types and limits of HOA insurance creates a safety net that protects your community from unplanned and potentially catastrophic losses. Here are the essential types of HOA insurance coverage that you might need.
Why Do You Need HOA Insurance Coverage?
Despite the best prevention efforts, accidents still happen. People may slip and fall in your swimming pool, children can get injured in the playground, and your association’s fence might cross into a homeowner’s lot. These situations can lead to someone making a claim against the HOA.
Without HOA insurance coverage, the association will have to pay out-of-pocket for legal expenses such as attorney fees and settlements. Even if the HOA successfully defends itself against the claim, legal defense costs are still quite significant.
HOA insurance is also essential in case of property damage due to unforeseen circumstances such as floods, hurricanes, and earthquakes. Without the essential insurances, the HOA will have to pay for expensive repairs and replacements.
Essential Types of HOA Insurance Coverage
Here are the most common types of HOA insurance coverage. You need a solid understanding of these insurance types to determine which ones are essential to your community. The insurance coverage of your HOA will depend on many factors such as size, resources, and external factors.
1. HOA Master Policy
An HOA master policy provides coverage for a broad range of situations. Most master policies will already include property insurance and liability insurance — which are essential for HOAs.
However, in some cases, the amount covered by the HOA master policy isn’t enough. It could also be that there are some situations that are excluded from your HOA master policy. For example, your master policy might cover flood insurance but not other types of natural disasters.
In cases where the HOA master policy is not enough, associations will need to purchase additional policies to ensure that their community is fully protected from all types of situations.
2. Commercial General Liability
Commercial general liability insurance protects against claims that others may make against the association. It covers four aspects; namely bodily injury, property damage, personal injury, and advertising injury. Your association will be covered for accidents that may occur in shared spaces —such as a guest slipping on your swimming pool area.
3. Commercial Property Insurance
This type of HOA insurance policy protects the association’s property. It will cover damage due to vandalism or theft that occurs in HOA property.
This insurance will cover full replacement costs, but this may not be the same value shown in your reserve study. Make sure to look out for property deductibles to prevent causing a strain in the association’s resources.
4. Directors and Officers (D&O) Insurance
D&O insurance protects an association’s board of directors. Disputes over assessments, liens, and rule violations. Homeowners may become disgruntled and sue the board for mismanagement. This is an essential type of insurance because it protects board members from such claims. D&O insurance will cover the legal expenses of the board members. It also protects board members’ personal assets from litigation.
Apart from that, this type of HOA insurance policy also helps encourage homeowners to volunteer for board positions. Homeowners need to know that they won’t become bankrupt for simply doing their HOA duties.
5. Crime and Fidelity Insurance
Crime and Fidelity insurance protects the association from losses due to employee theft, dishonesty, and fraud. Should a board member or employee steal from association funds, the HOA will not be responsible for recuperating those losses.
6. Natural Disaster Insurance
Also known as catastrophe insurance, natural disaster insurance will cover property damage caused by floods, typhoons, earthquakes, hurricanes, and so on. Natural disasters can create significant damage to the association’s property, which could be very costly to repair. Having this HOA insurance coverage will allow you to rebuild your community without having to
7. Workers’ Compensation
Workers’ compensation insurance protects vendors, service providers, and volunteers in case they get hurt while working for your association. This is separate from the workers’ compensation insurance that vendors also have.
8. Non-Owned Auto Insurance
Non-owned auto insurance protects the HOA in the event that someone driving on association business is involved in an accident and does not have adequate insurance to pay for damages.
9. Umbrella Insurance
An umbrella insurance policy provides additional limits of insurance for liability claims. It can also provide coverage for situations that are not included in your HOA master policy.
Importance of Adequate HOA Insurance Coverage
Having HOA insurance is not enough. Associations need to make sure that their HOA insurance coverage is adequate for the needs of the community.
An HOA might be complacent knowing that they have liability insurance only to realize after an accident that it is not enough to cover all the expenses.
Since most insurance policies are renewed annually, make sure to review the HOA’s insurance policy to see what situations are covered and whether the amount of coverage is enough. If not, they can work with their HOA management or insurance broker to adjust policies and/or purchase additional policies.
It’s also important to have a good working relationship with your insurance broker. This is your main contact; you will be communicating with this person whenever the HOA has claims, concerns, and emergencies. They can also help you with HOA insurance requirements. As such, your insurance broker should be someone you trust and someone you believe is looking out for the best interests of your community.
Take Time to Review Your HOA Insurance Coverage
When it comes to HOA insurance coverage, it will never hurt to be overprepared. As a board member, you want to make sure that your insurance policies are in place and that there is adequate coverage in case of unfortunate loss or damage. HOA insurance might seem like an additional or unnecessary expense — until your HOA finds itself in the middle of a costly lawsuit or massive property damage. So as a precaution, make it a point to regularly review your HOA insurance coverage.
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