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An Explanation of HOA Insurance Basics

Every HOA is required to carry certain insurance coverages as mandated by law and their governing documents. As your Board reviews or updates its insurance coverages, the following tips are offered when shopping.

1. Purpose of Insurance. The purpose of insurance is to transfer the risk from the membership of the HOA to an insurance carrier. Eliminating loss is the purpose of insurance. Self managing the loss is a risk retained by the HOA.

2. Writing of Policies. Insurance policies may be written as a mono-line (“combined”) policy or as a multi-line (“stand alone”) policy. Generally the premium cost of combined policies will be less expensive than stand alone policies. While this may be attractive, the downside is that in the event of a claim it may negatively impact the cost of all combined insurance coverages. Whereas, stand alone policies will minimize the impact cost of claims to only the specific coverage in which it applies. Keep in mind when choosing a combined or stand alone policy that too many claims may result in a termination of insurance by an admitted insurance carrier requiring the HOA to obtain a non-admitted carrier.

4. Endorsements. An endorsement is a provision of an insurance policy that explains whether or not a specific coverage is excluded or included. Endorsements will either expand or restrict the coverage. The provisions of an insurance policy will indicate under specific headings what is covered and what is excluded. These items are called endorsements.

5. Declarations Page. The declarations page generally includes the name, address, coverages provided, policy term, policy limits, a list of coverage forms, premium amounts, and other individualize information. It provides a basic summary of the insurance services.

6. Carriers. An insurance carrier is the type of insurance company allowed to write policies within a state. For example, in North Carolina admitted carriers belong to the Insurance Guaranty Association while non-admitted carriers do not. An Admitted carrier is a classification of an insurance company that in the event of insolvency will have its policies covered by the Insurance Guaranty Association without delay in payment. Non-admitted carriers is a classification of insurance company that in the event of insolvency the Insurance Guaranty Association is not required to cover its policy obligations. So, then, a non-admitted carrier presents a risk to an HOA.

Copyright 2016 by Cambridge Management Group, LLC. All rights reserved.

DISCLAIMER: The information contained herein is intended for informational and educational purposes only and should not be construed as offering legal advice. For legal advice, seek the counsel of a competent attorney specializing in Community Association Law on matters pertaining to your state and community. For insurance advice, seek a license commercial insurance agent in your state.

For more information visit our web page at or contact us at: Support@CambridgeHOAPropertyManagement or by calling us at 704-874-1820 or 844.612.1515.

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