Insurance is one of the largest line items in an HOA budget, yet many boards renew their policies year after year without fully understanding what is covered. A single gap can expose the association to serious financial liability. Here is what every board should know.
Types of Insurance Every HOA Needs
Most associations require several distinct policies to be properly protected:
General Liability covers bodily injury and property damage claims arising from common area use.
Directors and Officers (D&O) Insurance protects board members personally against claims of wrongful acts, including allegations of mismanagement or failure to enforce governing documents.
Fidelity Bond (Crime Insurance) covers losses from theft or embezzlement of association funds. Many states require a fidelity bond equal to or greater than the association's total reserves plus several months of assessments.
Property/Master Policy insures common area structures and shared building components. For condominiums, this typically covers everything from the studs out. For planned developments, it covers clubhouses, pools, and similar shared facilities.
Workers Compensation is required if the association has any employees, even part-time staff.
Umbrella/Excess Liability provides additional coverage above the limits of your other policies. Given the cost of litigation, umbrella coverage is one of the most cost-effective protections a board can purchase.
Common Coverage Gaps Boards Miss
Even boards that carry all the standard policies can be caught off guard by exclusions buried in the fine print.
Flood and earthquake damage are almost never included in standard property policies. If your community is in a flood zone or seismically active region, you need separate policies. A single uninsured event could financially devastate the association.
Cyber liability is increasingly relevant. HOAs store sensitive homeowner data including bank account information and social security numbers. A data breach can trigger notification costs, credit monitoring, and regulatory fines. Most general liability policies exclude cyber events entirely.
Construction defect claims often fall outside standard coverage windows. If your community was built within the last ten years, confirm whether your policy covers this type of litigation.
Master Policy vs. Individual Homeowner Coverage
In condominium communities, the boundary between the association's master policy and individual homeowner coverage is a frequent source of confusion.
The master policy typically covers shared structural elements. The homeowner's HO-6 policy covers interior improvements, personal property, personal liability, and any deductible assessment the association passes through after a claim. Many governing documents assign the master policy deductible to the unit where the loss originated, meaning a homeowner without adequate HO-6 coverage could face a bill of $10,000 or more. Boards should communicate these boundaries clearly.
How Much D&O Coverage Does Your Board Need?
Smaller associations (under 50 units) should carry at least $1 million in D&O coverage. Larger communities or those with significant reserves and complex operations should consider $2 million to $5 million.
Confirm that your D&O policy covers defense costs in addition to (not as part of) the policy limit. Legal defense alone can consume hundreds of thousands of dollars.
Your Annual Insurance Review Checklist
Boards should conduct a thorough review at least once per year, ideally 90 days before renewal:
- Review replacement cost estimates against your reserve study. Building costs rise, and an outdated valuation could leave you underinsured.
- Confirm all policy limits still match the association's exposure. Has the community added amenities, hired employees, or increased its reserve balance?
- Check deductible levels. Make sure the association can absorb the deductible comfortably if a claim occurs.
- Verify fidelity bond coverage meets the threshold required by your governing documents and state law.
- Ask about new exclusions. Carriers sometimes add exclusions at renewal. Have your broker flag any changes.
How to Shop for Better Rates
Work with a broker who specializes in community associations. A generalist agent may not understand the unique exposures HOAs face.
Bundle policies when possible. Many carriers offer package pricing when you place multiple lines with the same insurer.
Invest in loss prevention. Carriers reward associations that maintain their property and address hazards promptly. A strong maintenance track record translates to lower premiums.
Request quotes from at least three carriers at each renewal cycle. Competitive pressure keeps pricing honest.
The Role of an Insurance Broker
A qualified insurance broker does more than place policies. They serve as an ongoing advisor, helping you understand your exposures and navigate the claims process. Your broker should attend at least one board meeting per year to review coverage and recommend adjustments. If your current broker is not proactively engaged with your community, it may be time to explore other options.
Insurance is not the most exciting topic at a board meeting, but it is among the most consequential. The time you invest in understanding your coverage today can save the association from a devastating loss tomorrow.
Need help evaluating your HOA's insurance coverage? Talk to Our Team