Homeowners associations (HOAs) are common and can have many perks, including shared community parks and playgrounds, regulations to help deter nuisances, and access to amenities like neighborhood pools or a free gym in your condo building. HOAs do usually assess fees to members, though, and you might be wondering why. While fees are used to cover a variety of costs, one big one is HOA insurance.

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HOA insurance is a type of coverage held by HOAs to help protect against liability risks. For example, if a swingset on a shared playground breaks and a child is injured, the association could be sued for negligence. HOA insurance is designed to help protect the HOA against such expenses, but it can also benefit you personally. Understanding how HOA coverage works might help you understand how your association dues are used.

What is an HOA master policy?

Your HOA likely has a “master insurance policy,” which is coverage that your HOA buys to protect itself against insurance claims. However, the master policy does not only serve your HOA. It also helps protect you from having to cover the cost of liability expenses or repairs to common areas passed along to you in the form of special assessments.

HOA master policies typically cover two things:

  • Property damage: The master policy protects the common areas much in the same way homeowners insurance protects a home. If a covered loss, like a fire or wind incident, damages a shared space for which your HOA is responsible, this portion of the policy could cover the repairs.
  • Liability: Suppose someone slips by the pool and decides to sue your HOA. The fees associated with the lawsuit will likely be expensive, potentially so much so that member dues will not be enough to cover them in full. The liability portion of your HOA’s master policy helps protect you from a special assessment to cover the cost of defending your HOA in court.

HOA fees usually cover maintenance costs to help maintain the common areas of your neighborhood or building. The cost of the fee is determined by the HOA’s board of directors and typically involves maintenance and property cleaning fees. The HOA fees may also cover lobby or pool costs if your home or neighborhood has one, employee costs for keeping up these areas and more.

Your HOA dues likely also help pay for the insurance policy. The policy payments are usually divided and each member within the HOA pays an equal fee towards the policy. However, the fees may be lower or higher depending on each member’s access to amenities and other features. If a HOA member does not pay the fees, the HOA could go through the collection process and file a civil suit against the homeowner. This could affect the homeowner’s credit score and future ability to buy a home or be approved for another large purchase.

Do you need loss assessment coverage?

HOA members can often add loss assessment coverage through their homeowner or condo insurance policy. Although loss assessment coverage is generally not required for condo insurance policies, it could help protect you if you live in a condo or HOA community. Loss assessment coverage helps cover a portion of damage or loss in common areas so that you might avoid having to cover your portion of the expense out of pocket.

What is an HOA?

A homeowners association, or HOA, is an organization led by an elected leadership team that oversees and controls certain aspects of your condo, subdivision or other planned community. There are several components to HOAs that affect homeowners, both positively and negatively. Understanding these aspects could help you decide if an HOA community is the right choice for you.

Shared spaces

Many HOAs maintain shared spaces, like parks, playgrounds, pools and other amenities. The HOA is responsible for maintaining the spaces, which could include everything from cleaning to repair costs after a storm.

Community guidelines

HOAs also set rules that are designed to improve your community, like parking stipulations or guidelines on landscape maintenance. Your HOA might even have control over which color you can paint your home or condo, what outbuildings you can erect on your property or the number of pets you can have. Some HOAs provide security services, too. All in all, an HOA’s primary goal is to create a cohesive, safe, well-functioning neighborhood where you enjoy living.

HOA fees

To help the HOA in its goal, an HOA fee is usually assessed for each member. HOA fees help keep your neighborhood and shared spaces well-maintained. The fees also go toward the insurance premium for the master policy, which covers damage to property and injury to guests that occur in shared spaces.

Special assessments

If unexpected expenses arise for your HOA that are not covered by your member dues, your HOA may pass that cost on to you in the form of a special assessment. Keeping your HOA insured minimizes your risk for special assessments, especially high-dollar ones. However, if your HOA finds itself short on funds, such as in the case of an expensive lawsuit, the costs may be charged to each homeowner.

HOA insurance and homeowners insurance

If you own a single-family home, you likely have a home insurance policy. Your policy covers your specific home, including the exterior, interior, personal property and any improvements that you’ve made.

If you live in an HOA, your association likely also has HOA insurance. Your HOA insurance and your home insurance don’t overlap. Your home insurance company covers your home while the HOA’s insurance company covers shared areas and the liability of the association. However, your policy’s loss assessment coverage, if you have it, could protect you from out-of-pocket costs if a loss exceeds your HOA’s master policy limit.

HOA insurance and condo insurance

When you own a home within an HOA, the lines between your homeowners insurance and your HOA’s master policy are pretty clear. You cover your house, and the HOA covers the shared spaces.

But when you live in a condo, things may be more complicated because you technically only own part of the structure. You will likely be required to have condo insurance, which is also known as HO-6 insurance. Then, your condo association’s HOA policy will work in tandem with your condo insurance policy to provide coverage. However, not all condo associations work the same way, and there are a few different types of coverage that your HOA’s master policy may have:

  • Bare walls coverage: This type of coverage from an HOA policy is the least robust and includes coverage for the exterior of your building like the walls, roof and studs inside your condo. No coverage is provided for any interior features that are used only by the homeowner, like the cabinets, sinks, toilets.
  • Walls-in coverage: Also called single-entity coverage, this is the most common type of coverage for an HOA to stipulate. This type of coverage provides for the exterior of the condo plus some basic interior features and fixtures that are included by the builder. This type of master policy includes coverage for your drywall, paint, flooring, cabinetry, built-in appliances and light fixtures. Any enhancements, improvements or renovations done by the homeowner would not be covered.
  • All-in coverage: This is the most inclusive type of coverage provided by some condo associations. This type of policy takes walls-in coverage and adds coverage for a homeowner’s upgrades and enhancements. For example, if you remodel your kitchen and bathrooms, this type of association policy would cover your upgraded appliances.

For condo owners, understanding what type of coverage the association provides on its master policy is vital. Think of condo insurance and HOA insurance as a puzzle; you need to know what the HOA covers in order to build a condo policy that fills the gaps.

The bottom line

If you live in an association, whether it’s a condo or homeowners community, your HOA likely has a master insurance policy designed to cover shared spaces and liability exposure. If you live in a condo association, understanding your HOA’s insurance coverage is especially important, as it will help inform the coverage you need on your condo insurance.