Homeowner Association Insurance Pt. 1: The Basics

Efficient insurance? Unheard of! Yet, in HOA land, efficient insurance is the CAP Management forte.

Insurance professionals suggest that HOAs carry a single master policy covering all buildings in the parcel. Additionally, each separate unit owner should carry liability insurance and personal property unit insurance “from the studs in.”

The master policy and individual policies are necessary for overlapping coverage, which saves on overall premium costs, and should eliminate gaps in coverage as well as duplication in coverage…though exceptions exist.

A special condominium policy covering the contents of the unit and personal liability is often available through an individual insurance carrier. The technical term for an individual policy is an “HO-6 policy.” Such a policy will define what is insured within the unit. The policy will generally not cover liability for actions or damage to the common areas; nor will it cover events like rain damage.

The way to have things like rain damage covered? Obtain a “broadened policy.”

Where individual policies are required instead of a master policy, the association legal documents should set minimum insurance standards to be met by each owner, or copies of policies should be required to be filed with the association.

An individual owner must protect their insurance by obtaining a rider to cover certain aspects.  These differentiators include, and are not limited to: personal property, including furniture and clothing; fixtures, though this depends upon whether the master policy covers fixtures; glass breakage (depending upon master policy coverage); additional living expenses; loss of rental income when/if it is an investment property; personal liability; coverage for payment of special assessment, called “loss assessment”; and the amount of the master policy deductible. Deductible coverage can be significant: if an individual has an insurance issue that could be covered under the association, yet the association has a deductible, as it often does, the unit owners master policy deductible would cover part or all the deductible amount.

Umbrella insurance is designed to take over when your homeowners or association insurance reaches its liability limits. Most, if not all, of these exceptions can be covered under separate policies or additional riders.

Many blanket insurance policies exclude events or items, such as rain damage to the interior of units unless rain enters through a hole made by the wind.

A unit owner should contact their insurance agent to determine coverage overlaps or gaps between the master policy and what coverage can be obtained under his/her unit policy by additional riders.  A rider adds to or amends the coverage or terms.

Overall, contact your insurance agent and have that agent contact the association’s agent to determine the best scenario for you and your needs. For more information on Homeowner Association Insurance, read our next article here.

Note: while we are proud of our insurance expertise; this post shouldn’t be viewed as legal or insurance advice.

Author: Ben Tryon