Being a part of a homeowners association (HOA) can come with a lot of benefits, such as access to a shared pool or gym and the assurance that your neighbors are expected to keep their properties up to standards. However, HOAs do often come with a common drawback: the fees.
Those recurring fees enable your HOA to maintain common areas and enforce neighborhood rules and maintenance standards. They also go towards HOA insurance. This is coverage your HOA buys to help them repair any damage to common areas (if you’re in a condo, that includes the exterior of your building) and protect your HOA against liability claims.
In other words, HOA insurance works a lot like homeowners insurance, covering property damage and liability. But not all HOA policies are created equal. So you know exactly where your HOA fees are going, you may ask your HOA for your policy details.
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.
The people who make up your HOA’s board are responsible for maintaining the shared spaces within your HOA, whether that is a clubhouse, pool, tennis court or park. They also set rules that are designed to improve your HOA, like parking stipulations or guidelines on landscape maintenance, and they might provide security services. Your HOA might even have control over which color you can paint your home or condo. All in all, an HOA’s primary goal is to create a cohesive, safe, well-functioning neighborhood where you enjoy living. And to help them do that, you pay an HOA fee.
HOA fees help keep your neighborhood and shared spaces well-maintained. The fees also go toward insurance for the community, known as an HOA master policy, which covers damage to property and injury to guests that occur in shared spaces.
If unexpected expenses arise for your HOA that are not covered by your member dues, your HOA will likely 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.
What is an HOA master policy?
Your community’s master policy is insurance your HOA buys to keep themselves covered. 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, probably 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 protects you from a special assessment to cover the cost of defending your HOA in court.
HOA fees usually cover maintenance costs. 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.
Since a HOA master policy is a form of insurance that involves many people, HOA members typically pay for master policies collectively. The policy payments are usually divided and each member within the HOA usually 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 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 may avoid having to cover the entire expense of your portion.
HOA insurance vs. 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 and the other condo owners share the condo’s structure. There are a couple of different types of condo HOA insurance, which is also known as HO-6 insurance. It’s important to know which type your HOA has so you buy the right amount of condo insurance for yourself without overpaying to protect something that is already covered by your HOA.
The main types of condominium insurance your HOA can buy are:
- Bare walls coverage: Because the walls of your condo are shared, it would be tricky to have you and your neighbors cover them. Do you insure half the wall and your neighbor covers the other half? To help clarify who is responsible, your condo may buy bare walls coverage. This is a policy that insures the structure of your condo, or the bare walls, and everything in them like plumbing, wiring and insulation.
- All-in coverage: This type of policy takes your HOA insurance even further, typically covering everything a bare walls policy covers plus installed features in your condo like your appliances and countertops. If your condo has all-in coverage, it could help to get the details on exactly what it covers so you help avoid double-paying to insure aspects of your condo.
- Special entity coverage: Special entity coverage is also known as single entity coverage. Under the special entity coverage, all property, including property within individual units, is usually covered. However, special entity coverage does not apply to structural changes or additions made by the unity owner. Under the special entity coverage, unit owners are responsible for covering their own personal property.
HOA insurance and homeowners insurance
You may be thinking that if your HOA has you covered, you do not need your own insurance. However, even in the event you live in a condo and your HOA has all-in coverage, you still need to protect your property and liability (in this case, look into an HO-6 policy).
If you own a free-standing, single-family home, you may also not want to assume your HOA insurance will protect it. To avoid being caught off-guard financially in the event of a loss, consider looking to get a full homeowners insurance policy.
Long story short, if you are paying HOA fees, you are likely going to get some protection out of them in the form of HOA insurance. But policies vary widely so consider asking your HOA where you are protected — and where you are not.