Are you planning on starting your own HOA? HOAs can be beneficial when done right, helping to cultivate a community that fosters respect, keeps the neighborhood looking great, and produces a more tight-knit group of neighbors. But while forming an HOA might seem straightforward, there are easy elements to miss, such as the need for insurance. Here are three surprising reasons why homeowners associations need insurance that will inform how you go about forming your own.
1. Insurance Will Help You Cover the Costs of Damages to Common Areas
More often than not, HOAs don’t own the homes that fall under the management of the HOA. However, they do typically own common areas that residents enjoy. Should any of these areas burn down or experience other disasters that destroy them, the damages are not going to be covered by the community. HOAs need HOA insurance so that they can repair or replace these structures effectively. If they don’t have that coverage, they’re looking at high bills that they may not be able to manage. Whether it’s a neighborhood clubhouse, pool, or gazebo area, it’s important to have the means to cover damage if it should occur.
2. HOAs Can Be Sued if Incidents Take Place in Common Areas
Common areas often include amenities such as pools. Unfortunately, these types of common areas may be sites where accidents take place. Someone might slip and fall, or they might get injured should something in the common area break unexpectedly. If this does occur, those who were involved in the incident might seek damages. An HOA that finds itself on the receiving end of a personal injury lawsuit without insurance coverage will be faced with numerous costs related to defending itself. If an HOA does have an insurance policy, it’ll be able to cover the legal fees and pay out if the case is settled or it goes on to the courts.
3. The Right Policy Can Protect Members of the HOA or the HOA Itself From Members
Most think about insurance coverage as covering things like property damage and personal liability. However, there are often forms of insurance or add-ons for hyperspecific situations that you may find yourself caught up in. Let’s imagine, for example, that your HOA has to take possession of a home or a unit as a result of an owner failing to pay their dues. If they take any of the members of the HOA to court over this action, specific policies like directors’ and officers’ liability insurance will offer coverage to manage these costs.
Another example of HOA insurance that can prove useful is fidelity bonds or employee dishonesty bonds. If you have a member of your HOA who gets caught embezzling or engaging in other dishonest acts that cost the HOA, this form of insurance will help your HOA recover the costs associated with said actions.
HOAs need protection in order to thrive and navigate the complexities of managing communities. If you want to start your own HOA, use this guide to get a better overview of the risks associated with HOAs and why insurance coverage is a must.
Disclaimer: This article is intended for general informational purposes only and does not constitute legal, financial, or insurance advice. Readers are encouraged to consult with a licensed insurance professional or legal advisor to obtain advice tailored to their specific situation.
