3 Common HOA Insurance Coverage Pitfalls — and How to Avoid Them

Insurance costs for homeowners associations are skyrocketing, with many boards experiencing premium hikes in the past few years, often in the double-digit range.

In 2024, 89% of HOAs reported premium increases for property and casualty insurance, and nearly one-quarter said their insurer did not renew their P&C coverage.¹ Deductibles that once hovered around $10,000 are now reaching $100,000 or more.

For HOAs, the problem is often compounded by confusion regarding coverage for individual units and responsibility for claims. That can make it particularly difficult to find the right coverage at an affordable cost.

Common HOA insurance coverage pitfalls

Unfortunately, HOA missteps can compound insurance mistakes. Here are three common HOA insurance coverage pitfalls, and how condo boards can steer clear of them:

1) Underestimating replacement costs

Many HOAs rely on outdated coverage limits, often leaving them in a bind when making claims. In determining coverage limits, HOA boards may simply multiply square footage by average cost per square foot. Yet that doesn’t account for rising construction costs, specialized materials or rebuilding to modern codes.

And since most HOA governing documents require full replacement coverage, directors and officers (D&O) insurance typically excludes claims arising from a failure to purchase adequate insurance.

HOAs that systematically evaluate their coverage with their broker can avoid this pitfall. Boards should consider increasing coverage limits 4% to 5% annually to keep pace with inflation. Annual third-party appraisals help ensure coverage reflects replacement value.

2) Focusing on premiums, ignoring deductibles

Choosing an inexpensive policy with a high deductible can leave a condo board in a bind.

For instance, raising a deductible from $25,000 to $100,000 may save $10,000 immediately on premiums, but long-term, the association realizes those savings only if it goes seven years without a claim.

Instead, condo boards should base deductible decisions on claim frequency and the HOA’s financial health. If the community needs higher deductibles, their governing documents must include deductible shifting to owners through their HO6 policies.

Also, associations can assign deductibles on a pro-rata basis to affected units. This can help preserve condo reserves and avoid putting the full burden on a small number of individual owners.

3) Failing to plan for catastrophic deductible assessments

Deductibles for disasters like earthquakes, wildfires and hurricanes often amount to 2% to 5% of total insured value and are shared among all units. A building insured for $100 million with a 3% catastrophe deductible, for example, must pay up to $3 million in case of a claim, which could lead to massive assessments.

To avoid this pitfall, boards should determine their true upper limit for deductibles and communicate it to all unit owners. HOAs should update their governing documents to make these deductibles insurable under unit owners’ HO6 policies, while improving reserves and exploring deductible buy-down options.

HUB’s real estate insurance team can help your HOA avoid the many pitfalls in establishing insurance coverage for condos.

¹ Foundation for Community Association Research, “Insurance Coverage Trends in Community Associations,” April 2025.