HOA insurance explained: the master policy, your own policy, deductibles and loss assessments

Owners in HOA communities often assume the association "has insurance" and that it covers their home. In reality, the association's policy and the owner's own policy are designed to fit together, and gaps between them are common. Understanding the split before a loss is the best way to avoid an unpleasant surprise afterward. This guide explains the typical arrangement. Always confirm the details in your own declaration and policies, and talk to a licensed insurance agent about your coverage.

Two policies, two jobs

The master policy is bought by the association and paid for out of dues. It usually covers:

• property damage to common areas and, in many condominiums, the building structure;
• general liability for injuries in common areas;
• directors and officers (D&O) liability, which protects board members sued over their decisions;
• fidelity or crime coverage, which protects association funds against theft by insiders;
• sometimes earthquake, flood, or other perils, depending on the location and the board's choices.

Your own policy fills in what the master policy doesn't cover. In a condominium, this is usually an HO-6 ("condo") policy. In a planned development where you own the house and lot, you usually need a standard homeowners policy for the house itself, because the association may insure only the common areas.

Condominium master policy types

Condo master policies are often described in three broad categories. The terminology varies by insurer and state:

• Bare walls. Covers the building structure but not interior finishes such as cabinets, flooring, and fixtures. Owners insure everything inside.
• Single entity / original specifications. Covers the structure and the interior as originally built, but not upgrades owners have made.
• All-in. Covers the structure and interior fixtures, including improvements, although owners still need coverage for personal belongings and liability.

Your declaration usually says which approach the association must use. Your HO-6 policy should be sized to match. If the master policy is "bare walls," your dwelling coverage needs to include your floors, cabinets, and fixtures.

Deductibles and chargebacks

Master policy deductibles have grown a lot. Deductibles of $10,000, $25,000, or more per claim, and percentage deductibles for wind or earthquake, are common. Many declarations let the association charge the deductible to the owner whose unit caused the loss, or spread it among the affected owners.

This matters for your own coverage. Ask your agent about:

• Loss assessment coverage, which helps pay your share of a deductible or a special assessment after a covered loss to common property. Policies have limits, and some cap coverage for deductible-related assessments, so check how much yours provides.
• Dwelling or "building property" coverage on your HO-6 that can respond to damage inside your unit up to the master deductible.

How to find your association's coverage

Ask the manager for a current certificate of insurance and the declarations page for each policy. In California, the annual budget report must include a summary of the association's property, general liability, earthquake, flood, and fidelity insurance, with the insurer, type of coverage, policy limit, and deductible for each (Civil Code 5300). It must also include a notice that members may review the actual policies on request. Even in states without this rule, owners can usually inspect insurance policies as association records.

Flood and earthquake

Standard property policies generally exclude flood, and many exclude earthquake. If your community is in a flood-prone area, ask whether the association carries flood insurance on the building. The National Flood Insurance Program, explained at FloodSmart.gov, offers policies for condo associations and for individual owners. Unit owners can buy their own flood coverage for contents and, in some cases, building elements. In earthquake country, ask whether the association carries earthquake coverage and what the deductible is. Earthquake deductibles are often a percentage of the insured value, which can mean a very large special assessment after a quake.

When a loss happens

1. Protect people and property first: stop water and secure the area.
2. Notify the association and your own insurer promptly.
3. Document everything: photos, video, receipts, and contractor reports.
4. Ask the association which policy it believes applies and whether it will make a claim.
5. Keep your adjuster informed, especially if the association plans to charge you a deductible.

Responsibility for repairs often follows the maintenance rules in your declaration. In California, the defaults in Civil Code 4775 apply when the documents are silent. See our guide on maintenance responsibility.

Questions to ask each year

• What type of master policy do we have, and what are the deductibles?
• Has the deductible changed this year?
• Can deductibles be charged to owners, and under what circumstances?
• Does the association carry flood and earthquake coverage?
• Are D&O and fidelity limits enough for our reserve balances?

Then review your own policy against the answers, especially loss assessment limits and dwelling coverage. A short annual check can prevent thousands of dollars in uncovered costs.

Liability inside your home

The master policy's liability coverage generally applies to common areas. If a guest is hurt inside your unit or on your lot, your own policy's personal liability coverage is usually what responds. The same is true if water from your unit damages a neighbor's. Make sure your own policy includes enough liability coverage, and consider an umbrella policy if you have significant assets.

Renters and landlords

If you rent out your unit, ask your agent about a landlord (dwelling fire) or HO-6 policy written for rentals, and require tenants to carry renters insurance for their belongings and liability. Tenants generally aren't covered by the master policy or by your policy for their own possessions.

Rising premiums

In many parts of the country, association insurance premiums have risen sharply in recent years, driven by storms, wildfires, and construction costs. Some associations have trouble finding coverage at all. If your budget shows a large insurance increase, ask the board whether it worked with an independent broker, compared quotes, considered higher deductibles (and how those would affect owners), and looked at risk-reduction steps, such as roof upgrades or water-leak sensors, that insurers may reward.