Understanding HOA Insurance Coverage
Insurance is complex, and there are several areas that many homeowners and boards don’t completely understand when it comes to making sure they are properly covered. Here are a few of the most common:
- “All-risk” doesn’t mean that everything is covered by the policy; there are always exclusions.
- Property insured under a master association policy typically only includes the common areas and property owned by the condominium corporation. Boards should routinely remind unit owners to purchase their own unit coverage.
- Policy premiums and deductibles both affect the cost of insurance – and your board’s budget! Make sure you budget for deductibles as well as for the premium payments.
- Not all policies are the same. Insurance is viewed as a commodity, but carriers and the policies they issue can vary widely. It’s important to have a trustworthy broker or agent on your side to help you compare policies and get the right coverage.
- The association can be penalized, and even sued by residents, for being under-insured, so it’s critical to have the right valuation on the property before insuring it.
Natural Disaster Coverage
Different natural disasters come with different deductibles. A hurricane or flood policy may have a different deductible than other perils such as fire. Most catastrophic coverage has high deductibles. Your association’s policy can have a percentage deductible or a dollar deductible. The larger the deductible that policy has, the lower the premiums will be, but in the event of a disaster, you need to make sure that the association has budgeted appropriately for the deductible. Be aware of the financial resources your board will have access to in the event of an emergency and plan accordingly. This includes the coverage in the unit owners’ homeowner policies (HO-6 polices), which may pay special assessments.
Coverage Requirements
First of all, pay the premiums on time. Missed or late payments can cause problems if your association has a claim, or result in cancellation of your coverage. Each insurance company is different, but most conduct building inspections to ensure adequate coverage. The information on all insurance applications must be accurate or claims may be denied. Your association must abide by all safety recommendations, regulations and local laws. For example, sprinkler system valves cannot be turned off and smoke alarms must work. There may be other market-specific requirements as well; in the state of Florida, for example, you cannot get an insurance policy after a named storm has been announced.
Managing Premiums
We all want to save on insurance when we can! Anything that will help increase the safety of your community and reduce the likelihood of a loss may help reduce the premiums your association will pay. These can include things like properly installed security alarms, using a certain type of attachment for the roof, and other safety protocols.
The more homeowners in your association who buy their own insurance coverage, the better off the association will be. It all comes down to loss experience – the frequency of claims and the dollar amounts paid out for the claims. The lower your frequency and the lower the dollar amount, the lower the association’s premiums will be.
HO-6 Coverage
A lot of condo owners think that the association’s policy covers their units, but that’s not true. The association’s insurance policies typically only cover the exterior of the building, common areas and landscaping. HO-6 policies cover the personal belongings of the unit owner, personal liability, as well as any additions or improvements made to the unit (upgrading finishes and fixtures, for example). If an owner’s unit is unlivable due to a disaster or other reason out of their control, HO-6 insurance will help cover those living expenses, including rental of another residence while the insured unit is being repaired.
Your condo association benefits from unit owners having HO-6 coverage in two primary ways:
- If a disaster strikes your association building, and your insurance has a high deductible, the HO-6 policies of your unit owners can help cover that deductible. The association levies a special assessment on the owners to cover the deductible, which is then paid through the owners’ HO-6 policies.
- The percentage of your association’s residents who have that coverage can affect your association’s insurance premiums.