If you live in a development or community that is governed by a homeowners' association (HOA), you may end up paying less for individual homeowners' insurance than the average homeowner. That's because HOAs are responsible for buying insurance that covers all the public, common areas of a development.
Individual homeowners need to insure only their own units, whether that's a condominium, a townhome, a single-family home, or something else. Of course, the HOA insurance isn't completely "free" to you; a portion of the monthly assessments you pay to live in this community are used to buy the coverage.
It's worth learning where the HOA insurance stops and yours should begin, so as to make sure no gaps exist that could leave you without coverage after damage occurs.
HOA Master Insurance Policy
Many HOAs carry what's known as a "master policy." This policy typically provides coverage for both damage and personal injuries.
Physical Damage Covered by the HOA Master Policy
The HOA's master policy should provide coverage in the event of damage to the parts of the property shared by all owners, such as roofs, common walls, lobbies or atriums, stairways, elevators, basements, fitness centers and pools, ponds or lakes, playgrounds, and clubhouses.
This damage might be caused, for example, by wind, fire, flooding, or criminals and vandals. (Watch out for exclusions, however; for example, it's often necessary to buy separate flood coverage, and flooding is among the U.S.'s most common natural disasters.)
For condominium owners, this insurance is often referred to as "walls out" coverage, since everything within the walls of the owner's unit is usually that person's individual responsibility.(But in some condo policies, the interior, "bare" walls are covered by the HOA master policy as well.
Your HOA's governing documents should state exactly which areas the HOA policy insures. You'll want to take a close look and consider what is left out or what not to buy duplicate coverage for.
Injuries Covered by the HOA Master Policy
Your HOA should also purchase general liability insurance to pay the costs of any lawsuits for medical expenses filed by people who are injured in the common areas of the property.
For example, suppose the elevator in your building malfunctions and someone breaks a leg as a result, a visitor slips on ice on a common pathway, or someone's grandchild nearly drowns in the community pool. The injured person can sue and win a substantial amount of money. If your HOA insurance lacks this coverage, you and other homeowners might instead be responsible for the medical payments.
Ideally, the HOA's liability insurance will also include "directors and officers" coverage. This will kick in if someone sustains loss or damage due to the HOA management mishandling funds or acting in otherwise negligent manner.
What Insurance Coverage the Unit Owner Should Purchase
It's highly unlikely that your HOA's policy covers everything you need insured.
Plan on buying an individual insurance policy (often called a condominium policy) both for your own protection and because, if you're taking out a mortgage loan, your lender will require it.
This policy should cover both your personal liability (for example, if you accidentally trip someone within your apartment, causing injury) and physical damage within your unit, most likely to the interior walls, appliances and fixtures (such as counter tops, lights, carpeting, and cabinets), your personal property (clothing, jewelry, electronics, and so forth), and upgrades you've made to your unit. Also make sure to cover your living expenses if damage to your unit forces you to live elsewhere for a while.
Consult an insurance professional for details.
What If the HOA Fails to Obtain Sufficient Insurance?
Your HOA should protect your interests as a homeowner. If your HOA purchases inadequate coverage or none at all, fails to buy coverage for a likely source of damage (such as flooding), or fails to keep up with premiums, it jeopardizes the investment you've made in your home.
If the HOA's governing documents require it to purchase certain types of insurance, you have the right to examine the paperwork and make sure that the HOA does what it is supposed to do.
Questions to Ask a Real Estate Lawyer
- My HOA's master policy looks pretty complete, but are there gaps in coverage that I'm not noticing?
- Will our HOA's master policy really pay out enough to make repairs after major damage?
- I suspect our HOA has gotten behind on paying insurance premiums, but they keep delaying on letting me examine the financials; what do I do?
- Is it possible our HOA is buying more insurance than it needs to?
- Are there any duplications between the coverage I've purchased and that provided in the HOA master policy?
- My unit was flooded due to a leak coming from a common-area pipe. Whose insurance should cover this?