Your HOA Has Insurance… But Are You Actually Covered?

Let’s talk insurance. Specifically, insurance for condo and homeowner association members.

Insurance can be SO confusing. And let’s be clear right from the start: I am not an insurance agent. But after 42 years in property management, I’ve worked with numerous associations and their insurance agents, sat through countless insurance conversations and helped homeowners navigate more claims than I can remember.

And one thing I’ve learned?

Start with the governing documents.

Your Declaration, Bylaws, offering plan, CPS-7 or whatever documents govern your particular community should spell out the association’s insurance responsibilities. That is where the conversation about coverage needs to begin.

Some associations may only be responsible for liability insurance covering the common areas, along with Directors & Officers (D&O) insurance to protect the board.

Others insure much more.

Let’s Talk Blanket Limit Coverage

Many associations carry what is commonly referred to as blanket limit coverage on the buildings or homes.

In my experience, this type of coverage can provide excellent protection, but it is also something many homeowners don’t fully understand.

Here’s a simplified example.

Let’s say my imaginary HOA has 100 homes, and for our example, each has a replacement value of $300,000.

That gives us:

100 homes × $300,000 = $30,000,000

Rather than thinking of the policy as assigning one separate $300,000 bucket to each individual home, a blanket policy may provide a combined limit that applies across the covered property, subject, of course, to the actual policy terms, limits, deductibles and other provisions.

Why can that matter?

Replacement costs change.

Labor costs go up. Building materials go up. Construction costs go up.

A home that once cost $300,000 to rebuild may not cost $300,000 when a loss actually occurs.

And just to throw another monkey wrench into an already confusing subject, an association's insured value may not always equal 100% of the simple total we calculated above. Valuation provisions, coinsurance requirements and other policy terms can affect how coverage is structured.

This is exactly why you need to understand your association's actual policy—not just assume you're covered.

So…What Does the HOA Insure?

Back to those governing documents!

Depending upon the association and its documents, the master policy may cover a significant portion of the structure. But exactly where the association’s responsibility ends and the homeowner’s begins can vary.

Over the years, we’ve used a very simple visual to help homeowners understand the concept:

Imagine you could pick up your house, turn it upside down and shake it.

The things that fall out—your furniture, clothing, jewelry, area rugs, personal belongings and other contents—are generally things you need to think about insuring personally.

The things that don’t fall out may be covered by the association’s master policy if the governing documents and policy say they are.

Is that the technical insurance definition? Nope.

But it sure makes the conversation easier to understand!

And Then There’s the HO-6 Policy…

This is another place homeowners sometimes get confused.

Your insurance agent may talk to you about an HO-6 policy, often referred to as a condo insurance policy.

“But Kim…I don’t own a condo!”

I know.

Because apparently insurance wasn’t confusing enough already. 😂

Depending on how your association's master policy is structured, an HO-6 or similar personal policy may be used to insure your personal belongings, personal liability, loss-of-use expenses and portions of the property or improvements that are your responsibility. Your agent can also help determine whether you need coverage for the association's master-policy deductible or other potential gaps.

The Biggest Takeaway?

Don’t assume.

Don’t assume the HOA covers everything.

And don’t assume your personal homeowner policy is set up correctly simply because you've had the same policy for years.

Ask for a copy or summary of your association’s current insurance coverage.

Review what the governing documents say. Then take that information to your own insurance agent and ask:

“Based on what my association insures, do I have the right personal coverage for what I’m responsible for?”

That one conversation could make a very big difference if you ever have a claim.

Insurance isn't exactly the most exciting topic—but finding out what isn't covered after something happens is a whole lot less fun.

Have a question about how association insurance works? Drop me a line. I'm always happy to share what I've learned from the property-management side of the table.

The information shared here is based on my experience in property management and is for general educational purposes only. Insurance policies and association governing documents vary. Always consult your governing documents and a licensed insurance professional regarding your specific coverage.