Why the HOA Carries Insurance (What It Covers, and Why It’s Required)

Many of us have seen our personal home and auto insurance premiums rise over the last year, so it’s understandable to ask why the HOA carries insurance and what it actually covers. This post is meant to explain the “why” and the “what” in plain terms.

Why HOA insurance is mandatory

It’s required by our governing documents

Our community’s recorded Declaration (2006), Insurance section requires the Association to obtain and maintain insurance for the common property. It also treats the premium as a shared HOA expense that is paid through dues.

It’s part of what responsible communities do

That same Declaration ties the required coverage level to what prudent mortgage investors commonly expect. In other words, maintaining HOA insurance is a standard safeguard for neighborhoods with shared assets and shared responsibilities.

What our HOA insurance covers

Below is a high-level summary of the primary coverages reflected in our current HOA insurance policy documents, specifically the policy declarations and endorsements.

1) General Liability coverage

This is the core “someone is injured, or property is damaged” coverage related to HOA common areas and HOA operations.

Examples of situations where liability coverage matters:

• a visitor or resident alleges an injury tied to the entrances or common grounds
• claims involving the pond or surrounding areas
• claims related to HOA-maintained features in common areas

Our current policy declarations list coverage limits of:

• $1,000,000 per occurrence
• $2,000,000 general aggregate
• plus medical payments coverage at a small limit

The policy’s classifications also reflect the types of exposures we have as a community, including items like a homeowners association, lake/reservoir exposure, and common land.

2) Unit owners included as an insured, in a limited way

The policy includes an endorsement that adds each unit owner as an insured, but only with respect to liability connected to being a member of the association. This does not replace anyone’s personal homeowners or auto insurance, and it does not cover private homes, vehicles, or personal property.

3) Wrongful Acts coverage (often called D&O style coverage)

This coverage helps protect the Association and volunteer board members when decisions are challenged.

This can include claims alleging things like:

• improper governance or procedural issues
• enforcement and compliance disputes
• claims about how the Association handled duties or decisions

This coverage also includes legal defense for covered claims, which matters because defense costs can be significant even when the HOA ultimately prevails.

Why we need it, in plain English

The HOA is responsible for shared property and shared obligations, not any one homeowner individually. When something happens in or around common areas, the HOA can be named in a claim. Insurance is what helps protect the neighborhood from a single incident turning into an unplanned, major community expense.

What the risk would be without HOA insurance

With 72 homes, sidewalks/paths, entrances, and a 2-acre pond, the risk of operating without insurance is not theoretical. The biggest practical risks are:

• Large unplanned costs and special assessments: Without coverage, legal defense and any settlement or judgment would be paid directly by the HOA, and if reserves are not enough, the remainder typically becomes a special assessment.
• Higher exposure around the pond: Bodies of water can increase liability exposure due to injury risks and property damage allegations.
• Slip, trip, fall style claims: Entrances and common grounds are common areas where claims can happen, even when the HOA is acting responsibly.
• Personal pressure on volunteers: Without wrongful acts style coverage, board members can be left without the protections that help cover legal defense related to HOA decisions.
• Non-compliance with governing documents: Our Declaration requires the HOA to carry insurance for the common property, so going without it would place the Association out of compliance.

A note on this year’s premium increase

We’ve carried HOA insurance since 2020 and renew it annually. This year, the premium increase was significant, it more than doubled compared to last year. We are actively shopping for better pricing and coverage while still meeting our obligations and protecting the community responsibly.