Insurance is not just for homeowners. Homeowners’ associations (HOAs) need to invest in appropriate coverage to ensure that Board members and the entire community remain protected. However, many HOAs make costly mistakes with HOA insurance. These mistakes can lead to gaps in coverage and increased risk over time.
Below, we’ve listed the most common insurance mistakes Boards make and explained how to avoid them.
Insurance Mistakes to Avoid
Become familiar with the following common insurance mistakes HOA Boards make. Doing so will help ensure your Board avoids these pitfalls and your community remains protected in the long term.
1. Not fully understanding coverage requirements.
One of the most common, and often the most detrimental, insurance mistakes is Boards not knowing what they are responsible for insuring.
You can easily avoid this mistake by checking your governing documents and state laws. They will define insurance requirements for HOAs.
However, governing documents and official regulations can be complex and hard for volunteer Boards to navigate. Partnering with a professional HOA management company can simplify the process and make it much less stressful for your entire community.
2. Being underinsured.
Many HOAs try to reduce premiums by lowering their coverage limits. However, this plan can easily backfire because your HOA will not be properly covered if a major loss occurs. Regularly review and update your coverage to ensure that your policy reflects the current property values and risk exposure of your HOA.
3. Overlooking deductibles.
While premiums often get the most attention in an insurance policy, your Board also needs to consider the deductible. Choosing a plan with a high deductible can lower your monthly costs. However, if a claim arises, it could create a huge financial strain on the community.
When choosing the right deductible for your HOA, consider the following.
- Whether your association can comfortable cover the deductible in the case of a claim.
- How the deductible is allocated among homeowners.
- Whether your reserve funds account for potential claims in case the deductible is not met.
The best thing to do when choosing a policy is to balance your premiums and deductibles to reduce risk and keep your HOA financially solid.
4. Ignoring liability risks.
Of all the potential claims an HOA makes, liability claims are among the most expensive. Injuries in common areas, property damage, or legal disputes can quickly escalate into costly claims.
Always ensure your Board has the following.
- Adequate general liability coverage.
- Directors and Officers (D&O) insurance.
- Proper vendor insurance requirements.
- Risk management practices in place.
5. Handling insurance without professional guidance.
Finding the right insurance policy can be complex and stressful for an HOA Board. To avoid burnout and other common insurance mistakes, partner with a professional community association management company such as Community Property Management (CPM).
At CPM, we support the Board by coordinating with insurance providers, reviewing policies, and helping Boards maintain comprehensive and effective coverage. Contact our team today to learn more.