A homeowner association (HOA), which can offer many benefits such as accessing a pool or gym, and the assurance that neighbors will uphold their property standards, is a great way to get involved. But HOAs often have one problem: fees.
These recurring fees allow your HOA to maintain common areas, enforce neighborhood rules, and adhere to maintenance standards. These fees can also be used to pay for HOA insurance. This insurance is what your HOA purchases to cover any damage to common areas. (If you live in a condo that covers the exterior of your building), and to protect your HOA from liability claims.
HOA insurance is a form of homeowners insurance that covers property damage and liability. HOA policies may not be the same. You can ask your HOA to provide you with the policy details so you are clear about where your HOA fees are going.
What is an HOA?
A homeowners association (or HOA) is an organization that oversees and controls specific aspects of your condominium, subdivision, or other planned community.
Your HOA board is responsible for maintaining your HOA’s shared spaces, such as a pool, tennis court, or park. They may also establish rules to improve your HOA’s security, such as parking regulations or guidelines for landscape maintenance. The HOA may have some control over the color of your condo or home. An HOA’s main goal is to make your neighborhood safe and happy. To help them achieve this goal, an HOA fee is required.
HOA fees are a way to keep your community and shared spaces clean. HOA master policies, which cover damage to property and injuries to guests who use shared spaces, are also funded by the fees.
Your HOA may charge you a special assessment if unexpected expenses occur that are not covered by member dues. Your risk of being assessed for special expenses, especially those that are high-dollar, is minimized by having your HOA insured.
What is a HOA master policy?
The master policy of your community is the insurance that your HOA purchases to protect themselves. The master policy is not just for your HOA. The master policy protects you from being liable for damages to common areas or liability expenses that are passed on to you through special assessments.
Two things are typically covered by HOA master policies:
- Property damage: The master insurance covers common areas in much the same way that homeowners insurance protects a house. This policy can cover repairs to shared spaces damaged by a fire, wind or other incident.
- Liability: Let’s say someone falls by the pool and sues your HOA. The costs associated with a lawsuit will be high, likely so high that the member dues won’t be sufficient to cover them all. Your HOA’s liability section protects you against a special assessment to pay for the costs of representing your HOA in court.
HOA fees typically cover maintenance costs. The HOA’s board determines the cost of the fee. It usually covers property cleaning and maintenance fees. If your neighborhood or home has one, the HOA fees can also be used to cover costs such as a lobby or pool or employee costs.
HOA master policies are insurance that covers many people. HOA members usually pay for master policies together. HOA members usually pay equal fees towards the policy. The fees can be higher or lower depending on the member’s access and use of amenities. The HOA can file a civil lawsuit against the homeowner if a HOA member fails to pay the fees. This could impact the homeowner’s credit score, future ability to purchase a home , or approval for another large-scale purchase.
Are you looking for loss assessment coverage?
HOA members may add loss assessments coverage to their homeowner or condo insurance policies. Condo insurance policies do not usually require loss assessment coverage. However, this could be a way to protect yourself if you are a resident of a condominium or HOA community. You may be able to avoid paying the full cost of loss assessment coverage by covering a portion of damage or loss that occurs in common areas.
HOA insurance vs. condo insurance
If you live in an HOA, your homeowners insurance will cover your home. The HOA master policy covers your HOA. The homeowners insurance covers your home, while the HOA covers shared areas.
However, living in a condo can make things more complicated as you and other condo owners share the structure. There are several types of condo HOA insurance. Also known as HO-6 insurance. You need to be aware of the type of HOA insurance you have in order to purchase condo insurance that covers your HOA.
These are the main types of condominium insurance that your HOA can purchase:
- You can only cover the walls: Since your walls are shared by your neighbor, it is difficult to have both you and them covered. Is it possible to insure only half of the wall, while your neighbor will cover the other? Your condo might purchase bare walls coverage to clarify who is responsible. This policy covers the structure of your condo or the bare walls as well as everything inside such as wiring, insulation, plumbing, and wiring.
- All-in coverage is a policy that covers all of your HOA insurance, including the installed features like countertops and appliances. It is worth looking into all-in coverage for your condo to ensure you don’t pay twice to insure certain aspects.
- Single entity coverage: This coverage includes special entity coverage. All property is covered under the special entity coverage. This includes property in individual units. Special entity coverage does not cover structural changes or additions by the unit owner. Unit owners are responsible to insure their personal property under the special entity coverage.
HOA insurance and homeowners’ insurance
You might think that your HOA will cover you and you don’t need to have your own insurance. Even if your HOA provides all-in coverage for condos, you still need insurance to protect your property.
You may not want your HOA insurance to cover your single-family, free-standing home. You can avoid being financially caught unaware in the event that your home is damaged or destroyed.
The bottom line is that if you pay HOA fees, you will likely get some protection in the form HOA insurance. However, policies can vary greatly so ask your HOA about which areas you are covered and which ones you aren’t.