Let’s start with what HOA insurance may cover and remember this will differ with each HOA and their members. There are two basic types of condominium association insurance for HOAs which cover the physical structures; one covers the property from the studs out or what is referred to as common areas and the other is an All-In type of coverage which covers common areas and your personal unit. Then there are liability policies which cover the association and its members from losses that can relate to physical injuries on property to acts and omissions of the board members. The Texas Uniform Condominium Act “TUCA” can be read here as well as your condominium association insurance declaration will govern what kinds of coverage are required– however, that doesn’t mean that is all you need.
This coverage is for property which you own or are responsible for. For most condo or townhome owners associations this includes, but is not limited to, building structures, roofs, exterior walls, slabs, parking lots, elevators, pool areas, entrance gates or other common elements or limited common elements. Studs out is a type of coverage for that covers the building structure but not the contents or anything considered to be a part of the “unit”. Unit boundaries are usually defined in the declaration but if they are you should refer to TUCA above for definitions. Personal property within a unit is almost always the responsibility of a the individual unit owner.
All-In coverage however covers pretty much everything in terms of physical structure, common areas and your physical unit, but, again, normally does not include coverage for your personal property within the unit. This kind of coverage may be required depending on your declaration or whether or not you have stacked units in your association. Associations with horizontal unit boundaries (meaning it is possible for water from one unit to enter another unit from above) are required to carry all in coverage when it is reasonably available.
Often boards will debate whether to obtain “all in” or “studs out” coverage. The truth is, this is generally going to be determined by what your declaration requires. Most condominium association insurance forms will defer to the declaration’s insurance requirements when determining what should be covered. For more questions on property coverage for your condo or townhome please call us to discuss your coverage needs and getting competitive insurance quotes for your association.
Another important line of insurance coverage that an HOA must have is general liability insurance. This insurance is generally intended to protect the owners and the association from losses related to bodily injury or other person’s property damage, including lawsuits filed by persons injured in the common area of the property but may not cover an injury someone sustains while in your personal unit. You can refer to the actual policy for details of your coverage. Other types of liability coverage that most associations should carry include: directors and officers insurance, crime coverage, hire and non-owned auto coverage.
The upside to condominium association insurance is that the cost is spread across a group of owners versus just a single individual so many times it can be much more cost effective. Your insurance payment is normally included in your homeowners’ fee, but not the deductible should something happen. You may want to encourage your HOA to keep the minimum deductible in the reserve funds to avoid an assessment at the time of an event. According to bankrate.com deductibles in the past ran about $5000, but in todays’ market those deductibles can run as high as $25000 to $50000. That can be a huge hit at a time when you may be experiencing personal unit damage at the same time.
So what do you personally need to purchase and how do you determine that? When purchasing a condo you should always ask about the types of coverage that are included in the HOA master policy and which are your personal responsibility. Prior to purchase, ask for a copy of the HOA master policy to review with your personal insurance agent prior to closing. Doing this can eliminate surprise cost after purchase that can affect your monthly budget.
For your internal coverage if you are not part of an All-In policy, a simple rule of thumb would be to take half of the value of the unit to determine how much coverage you need. This should adequately cover you if you have to replace fixtures, flooring, etc. If you are uncomfortable with that, have your insurance agent take a look and give you a suggestion. Either way, be certain your agent has a copy of the HOA master policy in hand so they can determine the needed coverage.
One final tip is to know if the property you are purchasing is in a flood plain and if so, does the HOA have flood insurance which will cover not only the common areas, but also your unit. This insurance is normally purchased through the state, and certificates for flood insurance are normally required at time of closing for properties which this applies.
So how much coverage do you need? There is no cookie cutter answer for that but we have licensed professional insurance agent who specialize in condominium association insurance on staff to review your coverage and obtain additional competitive quotes to help you make the best coverage decisions possible.