HOA insurance: What coverage do you need to insure your unit? This is what homeowners association insurance covers and why you need insurance for your unit.

Q: Our homeowner’s association (HOA) is requiring that each owner buy insurance to insure that owner against damage caused by their unit to the common areas of the association and to neighbor’s units. 

In particular, the concern is water damage and other “perils.” I have received conflicting advice from some people. One person told me that they can’t issue this kind of coverage unless the insurance company rules there is negligence that caused the damage. And, then if it’s negligence, they can’t possibly insure the unit owner for that. 

I am truly confused. I read your columns and thought you might weigh in. 

A: Without getting into the nitty gritty of insurance, we think that your association is correct make sure that all unit owners have enough homeowners’ insurance to cover their units and any damage caused to other units or the common areas of the property by anything that happens inside your four walls, ceiling and floor. 

HOA Insurance: What Coverage Do You Need to Insure Your Unit?

Let’s say you’re making fried chicken one day and wind up with a small grease fire in your unit. The damage spreads through your unit and then breaks through the wall into your neighbor’s unit. In addition, there’s smoke damage to the hallway. Your homeowners association wants to make sure you have adequate insurance to repair the damage within your unit, the neighbor’s unit and to clean up the smoke damage caused to the common area. That’s completely reasonable when living in a multi-family property.

Another clear example is if a toilet in your unit leaks into the unit below yours and the damage will cost $2,500 to repair. We’d assume that you were somehow at fault (because your toilet leaked) and your downstairs neighbor would be right to want you to pay for the damage. Your homeowners insurance should pay for that damage. 

Where it starts to get confusing is when something happens (let’s say a pipe bursts between units) but you are not so clearly at fault. Your insurance company should cover damage in your unit but may say that the neighbor’s insurance should cover the neighbor’s losses. We’re not going to get into the details of how and why the insurance companies may handle this. The important thing to know is that when all unit owners have adequate homeowners insurance, there will be adequate coverage to ensure that common areas of the property are protected and the property’s insurance coverage won’t wind up being responsible for repairs made within units.

HOA Insurance Covers Repairs to Common Areas and Unit Damage Caused by Common Areas

Many associations will repair common areas and some parts of units when the damage is caused by common area problems (a leak from an air conditioning unit on the roof, for example), but the association doesn’t want to buy enough insurance to pay for damage to TVs, clothing, wallpaper, carpeting or anything else within a unit. That’s typically unaffordable (without having a huge assessment). Instead, the homeowners association wants the owner’s own policy to cover the individual’s unit. 

Your question wasn’t exactly clear on this point, but we suspect you might be getting at what happens when problems over insurance coverage come up between unit owners rather than an owner and the homeowners association.

What Does the HOA Policy Cover?

When it comes to homeowners associations and the property insurance coverage, the association’s policy will typically only cover common areas and items specifically required under the homeowners association documents. If the issue is between the homeowners and one owner is clearly at fault, that homeowner’s insurance will have to pay. Where there is no clear fault, the insurance companies typically work it out. (We say “typically” because there are always exceptions.)

The bottom line is that the requirement for each unit owner to have insurance is a good one and your insurance agent should be able to get you coverage for both your contents and liability. Be sure to shop around for the best pricing.

More On HOA Insurance, Rules and Regulations

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How Much Personal Information Do You Have to Give to the HOA?

Can You Lose Your Home if the HOA Goes Bankrupt?

What Makes a Good Homeowner’s Association Board

When the Homeowner’s Association Doesn’t Uphold the Rules

How Are Homeowners Association Fees Determined?

Is the Condo Board Responsible for Enforcing Association Rules?