How Can HOA Insurance Affect A Rental Property?

Among the many concerns and issues that landlords deal with, HOA insurance is probably the last on their list. But, considering how insurance can indirectly impact rentals, it should be among the top considerations.

What Is HOA Insurance? What Does HOA Insurance Cover?

Homeowners associations are structured like corporations. But, functionally, they are like government bodies. HOAs collect dues from homeowners and then use these dues to fund the expenses of the community. One of these expenses is HOA insurance.

For those who are unaware, HOA insurance is a form of property and liability insurance. Also known as an HOA master insurance policy, it offers liability coverage for injuries that take place in common areas for which the association is responsible. Most master policies also offer coverage for damages to common spaces and elements.

It is imperative that homeowners associations have sufficient insurance coverage. Insurance helps financially protect the HOA in the event of damage or injury. Many policies will even pay for legal expenses should someone sue the HOA after getting injured in a common area.

What Does a Condo Association Insurance Policy Cover?

One might wonder how HOA insurance differs from condo insurance. While the two policies do share several similarities, a condo insurance policy usually also covers shared elements between units.

In single-family HOA communities, homeowners don’t really share a lot of elements with each other or the association. In contrast, condo owners typically share walls with their neighbors. They can also have windows and balconies that are attached to the condo building itself, which is considered the condo association’s property.

But, even with a master condo insurance policy, individual unit owners are still advised to purchase their own policies. To know what type of condo homeowners insurance they must buy, unit owners must find out the extent of the association’s coverage.

For instance, the condo association’s policy might cover shared walls and balconies but not built-in appliances. In that case, unit owners would do well to purchase a policy that covers both built-in appliances and their personal belongings.

Types of HOA Insurance

There are several different types of HOA insurance policies. These include but are not limited to the following:

Master Policy. As previously explained, the master insurance policy for homeowners associations generally offers property and liability coverage.
Comprehensive General Liability. While a master policy might cover liability, it is usually not as extensive. For added coverage, HOAs should buy a comprehensive general liability policy.
Directors and Officers Insurance. D&O insurance protects HOA directors and officers from personal liability should they find themselves on the receiving end of a lawsuit. Though, this policy does not cover willful misdeeds.
Discrimination Coverage. This type of insurance provides protection to the association in the event a homeowner sues the HOA on the basis of discrimination.
Catastrophe Insurance. An association’s master policy usually won’t cover all kinds of disasters. In that case, it is imperative that an HOA purchase additional catastrophe insurance. This is especially helpful if the HOA is located in an area that experiences frequent natural catastrophes.

Does HOA Insurance Cover Rental Properties?

It is a common misconception that individual homeowners need not purchase their own policies if they live in an HOA community. While it is true that owners contribute to insurance payments in the form of HOA dues, they are still responsible for their own homeowners insurance. In the same way, rental property owners in HOA communities must also purchase their own insurance policies.

Homeowners association insurance generally does not extend to rental properties. As such, landlords must buy either homeowners insurance or landlord insurance, whichever applies. A landlord may find their homeowners insurance sufficient if they are only renting out a room in their own place of residence. However, if they rent out entire homes or units, it is essential to have landlord insurance.

Aside from getting their own insurance policies, though, landlords should also require tenants to purchase sufficient insurance coverage. Since landlord insurance typically does not cover the tenant’s personal items, tenants should get renters insurance, too.

How HOA Insurance Impacts Rentals in Planned Communities

Rental property owners already have to deal with a lot of issues. But, owning a rental property in an HOA community comes with its own set of struggles. In addition to the usual problems a landlord might face, landlords in HOAs must also pay attention and adhere to the rules of the community. More often than not, these include rental restrictions.

Not all insurance policies cover rentals. Moreover, some HOA boards simply don’t want to get added coverage because it comes at an extra cost. Due to insurance limitations, an association may impose stricter rules when it comes to rentals, especially short-term rentals.

Some examples of these restrictions include:

Prohibiting short-term rentals because strangers frequently moving in and out of units can pose a threat to existing residents;
Disallowing tenants (i.e. non-members) the use of common facilities and amenities to limit liability;
Requiring landlords to purchase comprehensive condo insurance in case of damages brought on by tenants; and/or,
Outright banning rentals, whether long-term or short-term.

The existence of such restrictions will make it significantly harder for landlords to operate in HOA communities. Worse yet, if an HOA completely bans rentals, a rental property owner might lose that stream of income. But, while restrictions add to the struggles of a landlord, they can also pose benefits. After all, HOAs enact these rules for the purpose of keeping property values high.

What Landlords Can Do

At first glance, it may not seem like HOA insurance has much of an influence over rental properties. But, upon further inspection, it is clear that insurance does have an effect. One thing landlords can do that can help ease the burden on HOAs and, consequently, lead to lighter rental restrictions is to purchase sufficient landlord insurance.

Are you having a hard time juggling insurance requirements with HOA restrictions? If managing a rental property isn’t for you, then perhaps it is time to call a professional for help. Start your search for the best property management company today with the help of Rental Choice’s online directory.

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