The Ultimate Guide To Building/Property Insurance for HOAs in Utah
Even though insurance is becoming a vital necessity for many, it’s a very complicated and confusing industry, especially for buyers. As a premium agent of high-quality insurance providers, Looshki is making a dedicated effort to uncomplicate some of the most important insurance information that policyholders should know. These tips and explanations are designed to offer a general understanding of insurance, and if you have specific questions about purchasing new insurance, or about a policy you currently hold, we encourage you to call us (or a local, trusted insurance agency if you’re outside of Utah) and let us go through all of your needs to make sure you’re completely covered.
What is HOA Building/Property Insurance?
HOA Property Insurance, sometimes called building insurance or dwelling coverage, offers coverage for the physical components of a community association. It’s what will cover any property that the HOA or condo association owns from various types of peril. It is almost always sold as a package deal with Liability Insurance, so if your community is in need of a Building/Property policy, you will also need to consider your community liabilities for the bundled Liability Policy.
How is coverage determined?
There are a lot of moving parts involved when it comes to determining coverage levels for building/property insurance for HOAs. Coverage will be determined based on a few factors:
Water/sewer access points: Because a vast majority of property insurance claims are connected to damages caused by sewer and/or water backups, determining the coverage needed for potential water/sewer damage will be important. This coverage will be determined based on the location of water access points throughout the building being covered. For example, a 10-story condo building with in-unit washer hookups will need greater coverage than a 10-story condo building with a shared laundry center on the first floor, and no in-unit hookups or water access. The increased number of water access points, as well as the elevation of those access points, creates a greater chance of water damage throughout the building.
Percentage of permitted rentals within the community: Insurance companies will typically need to know the maximum number of potential tenets, and what percentage of those tenants can rent out their property. This is because owners are proven to take better care of the property than renters, as renters tend to be less cautious and can contribute to larger problems. Communities with high rental thresholds may not even be quoted for building/property coverage.
Ordinance and law coverage: This is where coverage can get a little dicey. Insurance policies are specifically worded to detail exact output. For building/property coverage, policies require that rebuilds (any kind of replacement or recreation of a portion of or a whole building that has succumbed to covered damages) match exactly what existed previously. While that doesn’t sound complicated, it is.
As society advances, we learn that some things, like building materials, are dangerous and should not be used even though they were used in the past (asbestos, for example). Because of this, states and local governments will enact restrictions on dangerous building materials or even building practices. If this has happened, and a covered building was originally built using now-prohibited materials, the insurance policy legally cannot rebuild.
This is because of “indemnification,” which means, “to make whole. If a rebuild were to use safer materials than the original building, it would legally be considered a betterment, which exceeds being “made whole” and is considered to be a form of gambling constituting insurance fraus.
To avoid this, HOA building/property coverage needs to include Ordinance and Law Coverage as a policy add-on.
Building/property policies will cover a wide variety of damages to physical property, including but not limited to: sewer and water backup; fires determined not to be arson; tenant betterment and improvement (if a tenant improves a unit, the property insurance will still cover this assuming all upgrades were done by licensed professionals).
It can also cover inflation guard, which prevents the insurance company from jacking the price up. This is essentially paying extra to make ensure that policy premiums don't increase beyond a certain percentage each year, but it will NOT keep rates down if you have claims.
Building/property coverage can also offer common area-only options for HOAs with community buildings like a clubhouse.
Any community association that has shared buildings. That can be a multi-family condominium high-rise with three clubhouses and a pool house, or it can be a homeowners association with a single community center. Any community association building can be covered.
If your community has shared buildings, it’s imperative that the community association protect their property with an HOA building insurance policy. This is the safest way to guarantee that in the event the building is damaged or suffers a total loss, the homeowners are not on the hook for the cost of replacement.
What an HOA Building/Property Insurance Policy IS
What an HOA Building/Property Insurance Policy Is NOT
Building/Property Insurance is NOT the same as an Umbrella Policy. Umbrella coverage offers comprehensive liability coverage to the association, but does not include property or building damages.
Though building/property insurance is written to cover “peril,” the policy will not cover damages resulting from earthquakes. For protection from loss and damages due to earthquakes, your HOA will need to get a separate HOA Earthquake Insurance policy, or will need to instruct homeowners in the community to obtain their own individual earthquake policies.
Though building/property insurance is written to cover “peril,” the policy will not cover damages resulting from floods. For protection from loss and damages due to flooding, your HOA will need to get a separate HOA Flood Insurance policy, or will need to instruct homeowners in the community to obtain their own individual flood policies.
Dwelling coverage deals with a concept called Walls-In. Basically, if you turn a building upside down and shake it, whatever doesn’t fall out is covered by building insurance. Dwelling coverage is typically required for condo owners, usually stated by the community’s governing documents.
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What to Ask When Shopping for a Building/Property Insurance Policy for your HOA
When shopping for a policy, the most important thing to remember is that the possibilities are truly endless. Protection exists for just about every scenario you can imagine, and then some--the trick is to make sure YOUR policy names that specific protection. Each policy can have its own limits, deductibles, and limitations.
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Frequently Asked Questions
Insurance requirements are dictated by the community’s governing documents, and may also be impacted by state or local laws and regulations.
For example, in Utah, if walls are touching, and if one building is insured through the community association, all buildings must be insured together. In a community of houses, there is no requirement for building insurance.
It’s worth noting that this is more of a responsibility for the insurance provider, not the community, and is done to ensure that the same provider is covering all of the buildings in a community, rather than piecemealing several policies for a single community, building by building.
With all of that in mind, if your community has communal buildings, it is in your best interest to have building insurance even if your documents do not require it for some reason.
Where a Homeowners Insurance policy is based on the homeowner’s credit score, HOA coverage is determined differently. HOA Building Insurance coverage will be determined by a Statement of Value (SOV).
This will be done by the insurance agent, who will use online resources to determine the number of buildings in the community, the number of units per building, and the square footage of living and garage spaces for each unit. The agent will also factor in community buildings like clubhouses, covered parking areas, swimming pools, etc. Values will be applied accordingly and combined to generate the total cost to rebuild in the event of total loss. Other community areas like basketball courts, tennis courts, and playgrounds can be added on as policy riders.
The values for all components in the community will vary by city and zip code.
Building items like water heaters and A/C units are not covered by HOA Building/Property policies. This is because those components, though they are considered part of the unit or home, are the responsibility of the homeowner because of the amount of regular wear and tear they handle. As a result, building items of that nature will need to be insured through the homeowner’s HOI.
An insurance agent will generate the SOV, and will also perform a Loss Run Report. This will tell them if any claims have previously been made on the property. It will also be helpful to give specifics about the buildings that internet data cannot provide to the SOV.
Buying Property Coverage for Your Homeowners Association
Remember, this is a lot of information, but it only scratches the surface of what a comprehensive policy can do to protect your community. It is important that you seek out local professionals to go over any coverage you may currently have, the needs your community is most likely to face, and find where any gaps exist that can be filled before it’s too late.
If you’re looking for Building/Property insurance in the state of Utah, call Looshki today for a free consultation with one of our insurance representatives to learn more about how we aggregate only the best policy providers to fit your needs.
Why Choose Looshki?
There is a great irony that comes with choosing an insurance agent. In attempting to protect yourself from risk, you are taking a risk in which agency you choose. Like a soldier standing at the gates, insurance is your last line of defense, should the worst happen. And like those soldiers, if we fail at our job, it’s already too late by the time you find out.
At Looshki Insurance Group, we help mitigate your risk by working directly with you to understand your unique needs. We connect you with a wide range of major providers to find the policy that best meets your needs (and your pocketbook). If you have any issues, we are your primary point of contact, working tirelessly as your advocate to make sure you are taken care of.