Insurance is often one of the least understood parts of a community’s risk management strategy.
Board members and unit owners frequently rely on assumptions, outdated information, or only limit their concern to premiums. Unfortunately, these misconceptions can leave the association underinsured, paying for coverage they don’t need, or at risk of costly surprises after a loss.
To help clear the air, here are some of the most common community association insurance myths — and the facts every board should know.
Myth: Unit owners’ policies cover most of the building.
Fact: For condos, the master policy typically covers the building’s structure and common elements. The association’s governing documents and state statutes determine how insurance responsibilities are divided between the association and individual owners.
Both should be reviewed carefully when constructing the community insurance program.
Myth: We don’t need equipment breakdown, nothing in our building is ‘equipment.’
Fact: Modern community buildings rely on complex systems that can be expensive to repair without proper coverage. Equipment breakdown insurance helps associations cover sudden, accidental failures of essential building systems, including HVAC units, elevators, boilers, pool pumps, and electrical equipment.
These types of failures are not covered under standard property policies and can result in costly repairs, service interruptions, and potential safety risks.
Myth: The association can save money by keeping lower building limits.
Fact: Inadequate building limits can lead to coinsurance penalties or significant out-of-pocket expenses, costing far more at claim time. If a community association is underinsured when catastrophic damage occurs, the insurance payout may fall far short of the actual rebuilding cost. In severe cases, the association may struggle to restore the community to its pre-loss condition, impacting property values and financial stability.
Myth: We don’t need a large liability limit — we rarely have claims.
Fact: Community associations face liability claims more often than many realize, and claims can be expensive. Inadequate liability limits can result in significant out-of-pocket costs. Extreme cases can strain the association’s reserves and jeopardize long-term stability.
Even if a claim is ultimately without merit, defense costs still accrue, which underscores the importance of sufficient coverage.
Myth: Directors & Officers (D&O) insurance covers everything the board does.
Fact: Not all D&O policies are the same, and many include exclusions. Common exclusions may include discrimination claims or non-monetary disputes. Associations should review their policy carefully to ensure board members are adequately protected.
Myth: Flood insurance only matters if we’re in a flood zone.
Fact: Flood damage can occur in any building, and many losses happen outside high-risk zones. Heavy rainfall or rapid snowmelt can overwhelm drainage systems even in areas considered low-risk.
According to FEMA, in 2024, approximately $3.8 billion in flood damage occurred in communities outside high-risk flood zones (FloodSmart.gov).
Myth: Our association doesn’t handle sensitive data, so we don’t need cyber insurance.
Fact: Even small community associations handle personal information such as resident names, contact details, and vendor records. If dues are collected online or records are stored digitally (including by third party vendors), the association remains responsible for protecting that data.
Cyberattacks or data breaches can lead to identity theft, financial loss, or legal liability, and standard property or liability policies typically do not cover these risks. Cyber insurance helps protect associations from data breaches, phishing attacks, ransomware, and other cyber threats.
Protecting Your Community Association Starts with Understanding the Facts
Each community is unique, and your insurance program should be built accordingly.
Relying on inadequate coverage can jeopardize the community’s financial stability and lead to significant special assessments, project delays, or unfinished repairs that leave the property exposed to further damage.
In severe cases, the association may even struggle to restore the community to pre-loss condition, impacting property values and financial stability.
A knowledgeable insurance advisor can help your association:
• Confirm accurate building values
• Interpret governing documents
• Address unique exposures
• Ensure owners and the association have proper complementary coverage
• Review policies for gaps or outdated provisions
If your board would like a no-obligation coverage review or assistance evaluating your current program, our team at Community Risk Advisors is here to help.