If you live in a condominium or planned housing development, you will usually be a part of a homeowners association. As a member of an HOA, you’ll typically pay a portion of your condo building or residential community’s master insurance policy.
Knowing what your HOA’s master policy covers will ensure you don’t have too much or too little insurance for your own property.
What is HOA insurance?
HOA insurance covers damage and liability for injuries occurring in structures and common areas that the homeowners association owns.
HOA insurance protects you, your association, and its employees’ assets if something goes wrong, explains Mario Iveljic at Mag Mile Law, an insurance coverage law firm in Chicago.
“For instance, if an earthquake hits and causes damage to the condo building, the HOA’s master policy should have coverage for property damage that will pay for repairs to the building,” says Iveljic.
A lawsuit can considerably deplete your HOA’s cash reserves. In this case, your HOA would have to request a special assessment, which means higher fees from you to rebuild HOA funds, according to Insurance.com.
What is an HOA?
An HOA is an organization run by a board of individuals who oversee a residential community. Residents elect the board members from among their neighbors. Community members pay fees to the HOA that cover things such as insurance, property maintenance, and repairs.
These are the most common types of HOAs:
- Single-family homes HOA: These associations cover single-family homes that are part of a community, typically in a planned development. Like homeowners outside of an HOA, you own the structure and the lot it is built on and are responsible for insuring them. You pay the mortgage, property taxes, and insurance if you live in a single-family home HOA. Your HOA’s master policy will cover shared spaces like parks, sidewalks, and pools.
- Condo HOA: A condo is a private dwelling in a building with other units. Unlike a single-family home HOA, your condo association’s master policy will cover your building’s structure and foundation. It will also pay for liability expenses and property damage that occurs in shared spaces. You will need condo insurance to cover the interior of your unit and to pay for any legal expenses that result from an injury on your property.
What does an HOA master policy cover?
If you live in a single-family home, HOA insurance will only cover common areas like parks or pools. You are responsible for obtaining coverage for your house, personal property, liability, and reimbursement for living costs if your home becomes temporarily uninhabitable.
In condos, you generally live in a unit adjacent to others. Since the HOA owns the building’s exterior, its master policy will typically cover the repairs to your building’s structure and foundation. In addition, the master policy will cover expenses related to accidents or property damage in shared spaces. Typically, you are responsible for losses to the contents in your unit and accidents that occur within your unit.
Here are some of the specific areas of coverage that an HOA master policy can provide, according to Iveljic:
- Property damage in shared spaces: If common areas like a gym, pool, or lobby are damaged, your HOA master policy will pay for repairs.
- Directors and officer liability: Protects the HOA’s board of directors if they are sued for actions they take on behalf of the association including breach of contract, violating HOA governing documents, and failing to buy enough insurance.
- Worker’s compensation: Protects the association if its employees are injured on the job.
- Employee dishonesty: Protects the HOA from liability if an employee steals from a resident.
- Discrimination: Protects the HOA in the event that a condo owner sues for discrimination.
- Commercial general liability: Protects third parties who are injured on the HOA’s property.
- Commercial umbrella policy: If the cost of damage or injuries exceeds the coverage amount of the HOA’s master policy, an umbrella policy will pay the difference.
Types of HOA insurance
There are generally three types of master policies. Which type you have will determine how much insurance you need for the property you own.
- Bare walls coverage: This is the most basic type of HOA master policy. It will protect your building’s structure, fixtures, and furnishings in collectively owned areas, according to the International Risk Management Institute (IRMI). If your HOA has this coverage, you are responsible for insuring the contents of your home, including your built-in appliances.
- All-in coverage: This master policy covers your building’s exterior and some aspects of your unit, including repairs to damaged fixtures and any structural improvements you’ve made to your home, according to the IRMI.
- Special entity coverage: This master policy will cover all property in the residential community or condominium building, including fixtures in each unit, according to the IRMI. However, special entity coverage will not cover your personal property or any structural improvements to your unit. It will only pay to restore your unit to its original state before any enhancements.
HOA insurance vs. condo insurance
Condo insurance (HO-6) is usually paired with HOA insurance to fill the coverage gaps. The condo association will cover property damage in common areas and injuries that occur in common areas.
While all residents pay a portion of the HOA insurance cost, you are responsible for your own
policy. Knowing what the HOA’s master policy covers is essential to buying the right amount of condo insurance coverage and not overpaying for your insurance.
According to the most recent Condominium/Cooperative Unit Owner’s Insurance Report by the National Association of Insurance Commissioners (NAIC), the average annual condo insurance premium in the US in 2019 was $512. Here are the common differences between a “bare-walls” HOA insurance policy and a standard condo insurance policy:
HOA insurance vs. homeowners insurance
While condo insurance covers condos and co-ops, homeowners insurance (HO-3) covers detached single-family homes. Even if you are a part of an HOA, you will still purchase
if your property is detached from other structures.
With homeowners insurance, you are responsible for all coverage inside and outside your home. Homeowners insurance includes coverage for your dwelling, personal property, liability, and loss-of-use.
HOA insurance is paired with homeowners insurance if your home is part of an HOA. The master policy will usually cover property damage and liability expenses in shared spaces like a pool or a park.
The average annual homeowners insurance premium in the US in 2019 was $1,272, according to the most recent data from the Insurance Information Institute.
How to get your HOA’s master insurance policy
You can get a copy of your HOA’s master policy from the homeowners association board. The amount of condo insurance you buy will depend on what your master policy already covers. For instance, if your HOA only offers “bare walls,” coverage you might need dwelling coverage to pay for damage to your interior structure. However, if your HOA has “all-in” coverage, you may not need any or only minimal dwelling coverage.
HOA members meet quarterly and sometimes monthly, so expect changes in your HOA dues. Reviewing the master policy every year is essential to see if anything has changed and requires you to update your coverage. For instance, if your HOA downgraded or upgraded its policy, that may require you to have more or less dwelling coverage.