Serving on a Homeowners Association (HOA) board is often a thankless job. You are essentially the mayor, treasurer, and peacekeeper for a small village, all on a volunteer basis. While arguing over paint colors or parking rules might take up the bulk of your Tuesday evenings, your most critical responsibility is significantly quieter but far more dangerous if mishandled: protecting the community’s financial future.

Finding the right insurance isn’t just about checking a box to satisfy state laws or lender requirements. It is about ensuring that one lawsuit or one natural disaster doesn’t bankrupt the association or result in a massive special assessment that turns your neighbors against you.

Navigating the commercial insurance market can feel like trying to read a map in a foreign language. If you are currently shopping for HOA insurance to protect your community, here are the strategic steps you need to take to ensure you are actually covered, not just paying premiums.

1. Start with a Full Understanding

Before you even talk to a broker, you need to pull out your association’s governing documents (CC&Rs). The single biggest source of friction in HOA claims is a misunderstanding of where the HOA’s responsibility ends and the individual unit owner’s responsibility begins.

This is generally defined in three ways, and your policy needs to match your documents exactly:

• Bare Walls: The HOA insures the structure (studs, drywall, subfloor), but the unit owner is responsible for everything inside, including paint, fixtures, and flooring.
• Single Entity (Original Specs): The HOA insures the structure and the standard fixtures as they were originally built. If an owner upgraded to granite countertops, the HOA policy only pays for the original laminate value.
• All-In: The HOA covers almost everything inside the unit, often including improvements made by owners.

If your governing documents say “all-in” but you buy a “bare walls” policy to save money, you are creating a massive coverage gap that will lead to lawsuits the moment a pipe bursts.

2. Protect Yourself With Proper Coveage

Board members are volunteers, but in the eyes of the law, they are fiduciaries. This means you can be sued personally for the decisions you make. If a homeowner sues the board because they feel a contractor selection was mishandled or a rule enforcement was discriminatory, your personal assets could be at risk.

Directors and officers coverage is the shield that sits between a lawsuit and your personal bank account.

• The Non-Monetary Trap: Many basic policies only cover lawsuits asking for money (damages). However, many HOA disputes are non-monetary—for example, a homeowner suing to force the board to paint the clubhouse a different color. These lawsuits still cost a fortune to defend. Ensure your D&O policy includes a robust duty to defend clause that covers non-monetary claims.

3. The Fidelity Bond: Trust But Verify

It is an uncomfortable topic, but fraud happens. Whether it is a property manager siphoning off funds or a board treasurer borrowing from the reserves, theft is a real threat to HOAs.

A fidelity bond protects the money in the bank.

• The Calculation: Don’t just pick a random number. A good rule of thumb—and often a requirement by lenders like Fannie Mae—is to carry coverage equal to the sum of three months of operating expenses plus the total amount in your reserve fund. If you have $500,000 saving up for a new roof, your fidelity coverage needs to be high enough to replace it if it vanishes overnight.
• The Definition of “Employee”: Ensure the policy defines “employee” broadly to include non-compensated volunteers and board members, as they are often the ones handling the checks.

4. Watch Out for the Coinsurance Penalty

In an effort to keep dues low, boards often try to keep insurance premiums low. One common mistake is underinsuring the property—for example, insuring a clubhouse for $500,000 when it would cost $1 million to rebuild.

Insurance companies have a mechanism to punish this called a coinsurance clause. If you are found to be underinsured (usually less than 80% or 90% of the full replacement cost), the insurer will penalize you on any claim, even a small one.

• The Fix: Request an agreed amount endorsement. This waives the coinsurance penalty as long as you and the insurer agree on a value upfront. It removes the uncertainty and ensures you get the full payout you expect.

5. Managing the Loss Assessment Risk

Insurance deductibles are rising across the country. To keep premiums affordable, many HOAs are raising their master policy deductibles to $10,000, $25,000, or even higher.

If a storm causes damage and the HOA has to pay a $25,000 deductible, the board might levy a loss assessment against all owners to cover that cost.

• The Communication Piece: This is where you can be a hero to your neighbors. Educate your homeowners about loss assessment coverage on their personal policies (HO-6 for condos). It is usually very cheap (often less than $20/year) and covers them when the HOA passes down a deductible or special assessment.

A Community Benefit

Insurance for an HOA is not something you should blindly choose. Inflation drives up construction costs, laws change, and new amenities (like EV charging stations) bring new liability risks.

The goal isn’t to buy the cheapest policy; it is to buy the policy that ensures the community survives the worst-case scenario. By aligning your coverage with your governing documents and working with a broker who understands the nuances of community associations, you can govern with confidence, knowing that the neighborhood is safe on your watch.