In a homeowner association environment, there are two major types of insurance policies: the insurance carried by the HOA and insurance carried by the individual owners. In condominiums, the HOA's insurance generally extends to the entire property, including the units themselves. However, to protect the HOA's insurability, unit owners are required to carry a Condominium Owners policy which pays for insurable events within the unit. This spreads the risk so that the HOA only has to insure major events that affect multiple units (wind, fire, etc.).
Due to rising insurance costs in recent years, many HOAs have opted for much higher deductibles. Many $1000 deductibles are now $10,000 and even higher. With large deductibles comes the higher likelihood there may be a special assessment if there is an HOA claim for which there is no insurance deductible reserve.
If your HOA (especially a condominium) now has a much higher deductible, it's important that the members be informed so they can review their unit owners policy with their agent and be prepared for the consequences of a large deductible.
Here's a sample letter you can adapt for your HOA's use:
Due to rising insurance cost, our homeowner associations' insurance policy now has a $____ deductible for damage to any part of the building including the units. This potentially exposes our members to an insurance claim special assessment to pay for this deductible. With this in mind, you should contact your personal insurance agent to ensure that your Unit Owners policy is tailored properly.
Many insurance companies will allow an individual unit owner to submit the master policy deductible under a Unit Owners policy and only be responsible for the smaller deductible that is carried on the individual Unit Owners policy. There are two ways in which the deductible may be assessed:
- To individual unit owners. Generally the "Coverage A - Building" area of the policy extends coverage.
- To all unit owners. Generally, the "Loss Assessment" area of the policy generally extends coverage. It is very important to confirm that loss assessments can be applied to the building deductible. Some insurance companies only extend this coverage to liability losses.
A unit owner should also:
- Make sure there are sufficient dollar amounts of coverage in their policy to meet the HOA's deductible in both areas of their unit owners' policy.
- Make sure they have "special peril" building coverage rather than "named peril" building coverage.
- Have their policy endorsed for earthquake if they have an earthquake concern. Be aware there may be serious limitations for earthquake under the loss assessments coverage.
For more on insurance issues, see Regenesis.net