I was speaking with a friend the other day, and the topic of Homeowners Association (HOA) insurance came up.
Let me share some of my thoughts on our discussion.
You love your condo. You love that all the “big things” are taken care of by the association. Things like lawn care, outside maintenance, roof repairs, and of course... insurance. It’s all good, right?
Not always. Let’s take a look.
How it works
HOA insurance is the coverage that your condominium or homeowners association in Napa and the Bay Area must purchase to insure the common interests of all the property owners in the association.
It’s often referred to as “walls-out” coverage. (Though in some cases, the HOA Master Policy covers interior walls as well. Consult the policy to find out which applies to your association.)
Typical things that are covered include roofs, exterior walls, common buildings such as gazebos, atriums, lobbies, pools and exterior walkways.
An HOA insurance policy also covers liability for accidents that occur on common areas.
How it is unique
The interesting thing about homeowners associations is that each association is governed by its own unique Covenants, Conditions & Restrictions (CC&Rs). These are the legally binding documents that are the rules for the association and its members.
The CC&Rs tell condo owners whether or not they can park a boat in their driveway, what size shed they can have and many other things.
It also states what the HOA insurance should and should not cover. That makes each HOA policy a unique, specially crafted solution.
How it can break
Because every homeowners association requires different insurance solutions, it’s easy to get it wrong.
There is no “one-size-fits-all” policy that meets every association’s needs. It’s common for associations to find out after the fact that they were underinsured.
A common mistake is to cut corners on certain coverages, like sewer backup, earthquake coverage or building code and ordinance coverage. Another mistake is to cut corners on liability coverage and Directors and Officers coverage.
When there is a claim, any one of these mistakes can cost everyone in the association a special assessment to pay for what was not covered in the HOA policy.
A claim will test if your HOA policy was solid. A broken policy could cost every member a lot.
What you should do
If you are an association member, you should ask your board for a copy of the master policy.
Then take that to your trusted insurance agent. Here’s why: you need to make sure that the place where the HOA coverage ends is exactly where your own personal condo policy picks up. You don’t want gaps.
If you are an association board member, you should schedule a review of your policy with an experienced and trusted agent.
Also, be sure to bring along a copy of your CC&Rs. You are responsible for making sure that there are no gaps that could cause future assessments.
Remember... a cheap price is forgotten at claim time.
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