One advantage of living in a development or community that is governed by a homeowners' association (HOA) is that you could owe less for individual homeowners' insurance than the average homeowner. That's because HOAs are responsible for separately buying insurance that covers all the public, common areas of the 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.
One important consideration is whether the combination of your policies will dovetail well, as opposed to leaving gaps. Thus it's worth learning where the HOA insurance stops and yours should begin.
What's Normally in an HOA Master Insurance Policy
Many HOAs carry what's known as a "master policy." This 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. Take a close look, and consider what's 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 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 will cover everything you need coverage for.
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.
The policy you purchase should cover both your personal liability (for example, if someone accidentally trips within your apartment and gets injured) and physical damage within your unit, most likely to the interior walls, appliances and fixtures (such as countertops, lights, carpeting, and cabinets), your personal property (clothing, jewelry, electronics, and so forth), and upgrades you've made to your unit. At a certain point, whether in the walls or exterior, your ownership stops, and therefore your need to buy insurance coverage.
Also make sure the insurance will 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 Sufficiently Insure the Area It's Responsible For?
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, thus wasting our dues?
- 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?