The right insurance policies with the right coverage amounts are critical for every community association. State law may mandate insurance policies, and your association’s governing documents likely require certain types of coverage. Each association should review (on an annual basis) its coverage and coverage limits. Here are the policies every association should carry:
1. Property Insurance
Property insurance covers real property and insurable improvements owned or controlled by the association. Common examples include: clubhouses, restrooms, play structures, entrance monuments and fences.
The policies limits should be sufficient to cover replacement of any of the buildings or structures. If the association’s clubhouse is valued at $500,000, the property policy covering the clubhouse should be at least that much.
2. General Liability
Liability insurance covers the association and board against claims arising out of bodily injury. When an owner’s guest slips and falls on the association’s sidewalk, it’s the liability policy which is triggered and will provide coverage.
3. Directors & Officers Insurance
Some older governing documents may refer to this policy as “Errors & Omissions.” This policy will provide legal defense and coverage for claims asserted against the board or the association related to mismanagement, breach of fiduciary duty, or errors in judgment. The policy should cover the association, past and present board members, committee members, and managers of the association.
4. Fidelity Insurance
Fidelity policies cover theft of association funds. This type of coverage is especially important in self-managed associations which may not have sophisticated financial safeguards in place. Your policy limits on fidelity insurance should be least as much as the association has in all of its bank accounts.
5. Other Insurance Policies
In some cases, it may be appropriate (or required) for the association to carry earthquake or flood insurance. These policies are often expensive, but shouldn’t be overlooked if the risk is present. Lastly, if the association has employees worker’s compensation insurance is absolutely necessary.