6 Types of Insurance Policies Your Board Should Know

We spoke with insurance insiders who weighed in on the best ways your board can protect your community. Choosing the right types of insurance is critical for both your association and homeowners. Your board should know and consider these top 6 types of insurance policies: 
 

1. General Liability: Covers liabilities (slip-and-falls, damage to others’ property, etc.) 

If someone gets injured (or his/her belongings are damaged) and files a claim against the board, this type of insurance is crucial for medical bills, legal costs, repairs, replacements, etc.

2. Property: Covers association's assets (buildings, equipment, etc.) 

This protects things that are essential to running a business – computers, laptops, cell phones, chairs, filing cabinets, etc. Property insurance means you can continue business as usual despite any equipment repairs or replacements.

3. Directors & Officers (D&O): Protects the board, its decisions, and the property manager. It can also extend to committees. 

For example, a dispute over a fence may lead to unexpected soaring legal fees for a community association.  D&O insurance can protect the association and board members from lawsuits filed by residents who may be unhappy about the outcome of such disputes. 

4. Crime & Fidelity: Protects against embezzlement and theft of association funds.

Fraud can happen to any association at any time. This type of insurance protects against some of the most common threats to organizations, like losses suffered because of employee dishonesty, cyber fraud and theft, disappearance/destruction of association property, and credit card forgery/theft. 

5. Umbrella Policy: Extends over your liability policies if they become exhausted. 

For example: a homeowner’s child gets severely injured on one of the association’s playgrounds, and the homeowner sues the association. If he/she sues for more than what is covered by the board’s regular liability policy, the umbrella policy protects the association (and its homeowners) from exhausting financial resources to pay the difference.

6. Workers Compensation: Covers injuries for employees or board-authorized volunteers by paying medical expenses (not lost wages). 

Not only does “workers comp” ensure medical care for employees/volunteers, but it also can protect the board from legal claims filed by injured employees.

Texas residents should invest in these types of insurance policies: 

1. Homeowner/Condominium Policy: Provides coverage for resident's property. For high-rise residents, it also covers damages to common areas caused by severe weather. Make sure your insurance carrier offers property removal and lodging while your unit is being repaired. 

2. Loss Assessment Coverage: Two types: one covers deductibles (with a typical limit of up to $1,000); the other covers claims against you. 

Why do insurance premiums increase when associations renew policies? 

Insurance is tied to the global market, which is affected by severe weather (hurricanes, floods, droughts, wildfires, etc.). These events are happening more frequently, and recovery from them is quite costly. Examples of this here in Texas include Hurricane Harvey and “Snowmageddon,” just to name a few.  

According to Travelers insurance company, “In 2021 alone, the United States sustained 20 weather events with losses exceeding $1 billion each.” As the price of weather-related damages increases, so does the cost of the types of insurance listed above. Learn more about the average cost of homeowner insurance in 2021. 

Are reserve studies required? 

Single-Family Associations: Reserve studies for single-family associations are not required in Texas, but the board should consider them based on their assets, severe weather, and the economy. Think of a reserve study as an investment strategy, setting aside funds for a rainy day (pun intended).  

High-Rise/Townhomes: They are required for high-rises and townhomes. These reserve studies should be comprehensive and regularly updated. Reserve studies should clearly explain the condition of the association and map out a funding plan to pay for future expenses. 

Watch Now: Ask the Expert: Reserve Fund Study 

Can reserve studies be used to gauge budgets for different types of insurance? 

Reserve studies are not much of a budgeting factor, but they determine your assets and what is covered. They help brokers fully inspect the property and ensure the entire association is protected. We can make insurance recommendations, but the decision is ultimately up to the board.  

See more on the importance of reserve studies in this article by Reserve Advisors. 

How often should boards conduct appraisals? 

If boards are comfortable with the amount of insurance they have or if appraisals are not required, they may decide not to conduct expensive appraisals. On the other hand, if you have never had an appraisal (storm or not), you should certainly get one.  

What is not covered under conventional types of insurance policies? 

Although there is an increasing number of restrictions, the common incidents are usually not covered: 

• Landscaping (caused by wind, hail, and freeze damage) 

• Mold/mildew 

• Cosmetic damage 

• Backup sewer & drain (for high-rise communities) 

What unconventional types of insurance policies should boards and residents consider? 

• Cybersecurity: Covers costs associated with cyber attacks that compromise company data and recovery. (Watch our Ask the Expert video on how to protect yourself digitally.) 

• Deductible Buy-down: Reduces the deductible amount if the covered entity files a claim.  

How do you judge the quality of insurance carriers? 

There are companies that give ratings for different providers, but communities should look for A+ ratings. Look for smooth operating procedures and five-star customer service. Remember, let your insurance broker shop for you; asking for multiple quotes from different carriers can block your board from getting the best rates! 

What does the insurance renewal process look like? 

1. FirstService Residential Texas starts its renewal process 90 to 120 days (about 3-4 months) before renewal by asking you about community changes, from new equipment to furniture.  

2. Your information is shared with a carrier for a "good product at a competitive price." 

3. The feedback is shared with community leaders and property managers for review. 

4. The insurance company provides a quote, and the broker assesses it. 

5. The quote is sent to the community for approval. 

6. The renewal process begins.