HOA Insurance And H06 Insurance Explained

Homeowners associations must protect the community’s financial interests, and HOA insurance is often the first line of defense. When faced with an unexpected situation or peril, insurance protects from financial loss. There are several types of HOA insurance, and specific requirements may apply depending on state laws and the association’s governing documents.

 

What is HOA Insurance?

HOA insurance is a blanket term that applies to a homeowners association’s insurance policies. It is most often used to refer to a master policy that covers property damage and liability risks.

Homeowner association insurance generally does not cover individually owned properties; it only applies to the HOA. Homeowners will need to purchase their own insurance to cover their homes, personal belongings, and liabilities. This is called HO3 insurance.

 

What Does HOA Insurance Cover?

Most HOA master insurance policies offer coverage for property damage (including common areas) and liability.

• Property Damage. HOA insurance covers physical damages to the buildings or common areas that the HOA owns. For instance, if a storm floods the clubhouses, the HOA’s insurance can pay for the repairs.
• Liability. If someone suffers an injury while on HOA property, the association’s insurance can protect against a lawsuit. The policy should cover the cost of legal expenses and any damages.

The extent of coverage will depend on the HOA’s insurance policy. Since insurance providers offer varying coverage, it is up to the HOA board to determine the deductibles and amount of coverage the association needs. State laws and governing documents sometimes dictate the minimum coverage amount.

 

Condo Association Insurance vs H06 Insurance

Condo associations, like HOAs, require insurance. Policies specifically designed to cover condo associations exist. However, it’s important to understand that condo association insurance isn’t the same as HO6 insurance.

HO6, or condo insurance, protects the individual unit and everything inside it. It also provides liability coverage, among other things. In comparison, condo association insurance covers all common areas and shared elements and protects the association from liability claims.

Unit owners should check the coverage of their condo association master policy. This way, they can tailor their individual insurance policies to fill any gaps.

 

What Does Condo Association Insurance Cover?

For condo associations, the master insurance policy typically covers building damage, common areas, and liability protection.

• Building Damage. This covers the parts of the building that the condo association is responsible for maintaining. Typically, it includes the exterior of the building. If bad weather damages the roof, for instance, the condo association’s insurance should be able to cover the cost of repairing it.
• Common Areas. Condo association insurance usually covers shared areas and elements such as elevators, stairwells, lobbies, and hallways. Depending on the policy, it could also cover amenities such as swimming pools, sports courts, and clubhouses.
• Liability Protection. Accidents can occur within the association’s premises. If that happens, the condo association’s insurance policy can cover the legal expenses and damages.

 

The Pros and Cons of HOA Insurance

As with anything, insurance has advantages and disadvantages. Although board members should consider both sides before making a decision, insurance often pays for itself. Its benefits far outweigh its pitfalls; even its pitfalls can be prevented with proper planning.

 

Pros of HOA Insurance

• Protects common areas from damage
• Pays for repairs (covered risks)
• Covers legal costs if the HOA is sued
• Helps maintain property values within the community

 

Cons of HOA Insurance

• Doesn’t cover individual homes or interior units
• Special assessments may be necessary if coverage falls short
• Premiums can be costly (particularly in disaster-prone areas)

 

Essential HOA Insurance Policies

Insurance comes in many forms. Here are the insurance policies all homeowners associations should consider obtaining.

 

1. HOA Master Insurance Policy

The master insurance policy covers both property damage and liability claims. Property damage covers all HOA-owned properties and spaces, including common areas like clubhouses, pools, sidewalks, and landscaping. Liability protection offers financial coverage if someone sues the HOA for injuries.

 

2. Property Coverage

An HOA might want to purchase individual property coverage outside the master policy. In that case, it’s best to get property coverage. This policy protects the association’s physical structures and common areas within the community. Protection is only against covered perils, including natural disasters, fires, and vandalism.

 

3. General Liability Insurance

General liability insurance covers any injuries or damages on HOA property. For example, if someone injures themselves while in the HOA clubhouse, this policy can provide legal defense if they sue the association for negligence. If they win, the policy can also cover financial damages.

 

4. Directors & Officers Insurance (D&O)

While homeowners can sue the HOA itself, some might name board members personally. In that case, the board members can use D&O insurance to protect them from personal liability. This policy is crucial because it helps encourage homeowners to serve on the HOA board.

 

5. Fidelity or Crime Insurance

Fidelity bond coverage is a type of insurance policy that covers financial losses due to fraud, theft, or embezzlement by board members or employees. Other names for this policy include crime insurance and employee dishonesty insurance.

 

6. Workers’ Compensation

Workers’ compensation is a must if an HOA has workers or employees. This also applies to contractors that the HOA hires. This policy covers work-related injuries or sicknesses and offers liability protection to the HOA stemming from workplace accidents.

 

7. Umbrella Policy

An umbrella policy offers additional liability coverage beyond the general liability policy. It helps protect homeowners associations from large lawsuits.

 

HOA Insurance Requirements in Texas

Homeowners associations and condominiums in Texas must be aware of the state’s insurance requirements. Section 82.111 of the Texas Property Code, for instance, requires COAs to maintain adequate insurance for common areas and structures. Apart from state laws, an association’s governing documents may stipulate insurance requirements, including coverages and deductibles.

It is important to note that Texas law does not require HO6 or homeowners insurance. That said, many lenders mandate owners purchase such policies, and some mortgage lenders also scrutinize the HOA’s insurance policies.

Board members should also consider their specific location in Texas. Some areas, especially ones along the Texas coast, experience more windstorms and floods. The Lone Star State also experiences many hailstorms, so some policies may not include coverage for this peril.

 

Necessary Financial Protection

HOA insurance plays a key role in an association’s long-term financial success. Whether state laws or the governing documents require it, board members would be wise to obtain adequate insurance coverage for property damage and liability.

Graham Management offers exceptional HOA management services to Houston communities. Call us today at (713) 334-8000, request a proposal, or contact us online to learn more!

 

RELATED ARTICLES:

• What Is A Condominium Association? How Different Is It From An HOA?
• Are Condo Pets Allowed? Can The HOA Ban Them?
• How To Create And Manage An HOA Budget As A Board Member