Pick the right insurance plan for HOA living

Q: Do homeowners association (HOA) dues include insurance?

A: It depends. Let's eliminate the exception first: If you buy a single-family home that is located in a development that has an HOA, the dues almost certainly do not include insurance except on common areas, like the roads, parks, community centers, offices and pools.

However, if you are buying a condominium or townhome, your HOA dues likely do include some of the insurance you'll need as a homeowner, but not all of it.

As with single-family homes, HOA dues on attached homes cover all the common areas, but when the homes are attached, the exterior walls, exterior windows and roofs are also common. So are boilers, elevators and common basements or storage areas that are shared by more than one unit.

What's critical for you to know is what's not covered, as many first-time buyers aren't aware of what a standard homeowners insurance policy would normally cover. Your interior walls? Not covered under your building's or HOA's policy. Your personal belongings, like your laptop, your television, your appliances? Not covered. Your flooring and light fixtures? Not covered.

Fire, theft, vandalism -- these things can destroy your interior walls and fixtures and cause losses of your personal property, none of which would be covered if all you had was your HOA's insurance policy. Also, the normal single-family homeowners hazard insurance policy would also include liability coverage, to protect your home and assets in case you were sued when someone slipped and fell at your house, let's say.

But your HOA's insurance policy does not offer you liability coverage (except to the extent that it may cover you as an HOA member if someone were to slip and fall at the community pool, for example).

So, what's a unit owner to do? Obtain a condo owner's policy. Very similar to a renter's policy, these unit owner's policies -- also called "walls-in" or HO-6 policies -- cover all the items I just mentioned, which would otherwise expose you to hazards and liability if the HOA policy was the only homeowners' coverage you had.

In fact, these policies are so important that many lenders are beginning to require that you obtain it before they will fund your mortgage to buy a condo or other HOA unit.

Fortunately, in addition to being highly advisable, these walls-in policies are extremely affordable. Their costs are roughly comparable to renters insurance policies, which run in the $30-per-month range on average, nationwide. Of course, if you own and need coverage for a high dollar amount of personal possessions, like if you own valuable jewelry or pricey home electronics, it behooves you to obtain extra coverage for those items.

Make sure that you understand the amount of personal property coverage your condo owner's policy provides, and are comfortable that you could replace your belongings with that amount of coverage if they were destroyed or stolen.

Also, consider taking a digital photo inventory of your items, to ease the claims process in the event they are lost or damaged.

Most importantly, though, read your HOA documents very carefully when you receive them with the sellers' disclosures during your purchase transaction. The contours of condo insurance coverage that I've sketched out here are generalities, but you need to be 100 percent clear on what applies to your individual building or HOA.

The catch is that the HOA disclosures may very well constitute several hundred pages of fetal position-inducing boredom: lots of legalese, decades' worth of covenants and rules, and a year's worth of board meeting minutes, newsletters and financials. But suck it up, caffeinate (if needed) and read them -- including the declaration page on the building's insurance policy.

Make sure you are very clear about what is covered and what isn't, as well as the financial health of the HOA and the building itself, before you remove your contingencies and move forward with closing the deal.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   

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