About Homeowners Association Insurance

Homeowners association insurance has always had much confusion over what it is, and what it covers. This is because coverage offered for this insurance is different for each state. There are also different homeowners associations which use this insurance in different ways. There different functions, features, effects and considerations to take into account when investigating this type of insurance policy. Here is a basic description of what homeowners association insurance is and what it can possibly cover in general.

Identification

To understand what homeowners association insurance is, you must first know what a homeowners association is. Typically referred to as an HOA (for Home Owners Association), this type of nonprofit organization is a legal unit created by real estate developers to build, manage and eventually sell a community of homes. The association manages common amenities of the community. Homeowners Association Insurance is the coverage used by the association to insure the common areas of the community.

Function

The function of HOA insurance depends on how involved the association is within its community. The basic key function is to minimize the exposure of the community to the possibility of financial loss because of an event, activity or peril. Association insurance operates similar to business liability insurance in that the policy covers against overall liability of the financial operations.
Other functions of association insurance depend on the size and scope of the association. These functions can include any of the following; commercial general liability which is designed to protect against a wide variety of business liabilities; property insurance which protects against damage to common buildings and personal property owned by the association, and auto insurance which covers association owned vehicles used for maintenance or security. Association insurance can also include coverage for parkland or wooded areas as well as common pools and recreation facilities.

Features

The features of homeowners association insurance can vary from a simple package to a master package policy. Master Package policies will mainly insure property such as the interior and exterior walls, installed appliances, floors and ceilings or an all inclusive policy which covers all of the previously mentioned items plus any improvements made since the building was constructed. There is also single unit coverage for the common elements used in townhouses or condos where the walls and roofing are joined together.
Other features which can be included in the association insurance policy can range from coverage of antennas, signs, landscaping and sculptures to structures such as carports, awnings, fences or fountains.
Another feature of this type of policy is the deductible. This can be applied either as an "on occurrence basis" or applied separately to each building or unit.

Effects

The effect of the association insurance policy depends on how the policy and association by-laws are written. In most cases the insurance covers reconstruction to the bare walls, building, wiring and plumping. Other items including carpets, cabinets and light fixtures are left to the unit owner to replace with their own homeowner insurance policy.
While it is not required by most state laws, associations can require insurance coverage for each unit by the unit owner by way of including it within the original purchase documents.

Considerations

There are a few considerations which an association and a unit owner must take into account before purchasing this type of policy such as finding an insurance agent who is well versed in HOA policies; or identifying the loss ratio which the association is responsible for and what it will pass onto the unit owner. Another consideration is coverage for directors and officers liability, fire and natural peril, and possibly vandalism. The amount of the policy deductible the association and the unit owner are responsible for are also a matter to consider.

Warning

When dealing with associations and HOA insurance be sure to know some of the following conditions which may apply to your situation. There are both homeowners association policies and condominium association policies which vary in coverage. If the unit owner doesn't have individual homeowners insurance, then the association may be liable for damage but can also sue the unit owner for the cost. Unit owners should be aware of what the association policies cover and what the general guidelines are before entering into any contracts.