Why Every Contractor Should Require Workers’ Comp Insurance

Two construction workers died on the job every day in 2013, according to the U.S. Occupational Safety and Health Administration. One out of every 25 construction workers got hurt on the job that year. Workers in this industry need the protection of Workers’ Compensation benefits more than most.

Most states require employers to carry Workers’ Compensation insurance, but not in all cases. Many states exempt one-person operations from the requirement, for example. Regardless, it is a good practice for project owners and general contractors who hire subcontractors to require the subs to carry this insurance, whether the law requires it or not.

A typical construction project involves three types of entities: The owner who is paying to have the project done; a general contractor or independent contractor whom the owner hires to do the work; and subcontractors whom the GC hires to do portions of the work. The relationships between these entities and their employees differ.

While most states require employers to provide Workers’ Compensation benefits to employees, their laws also define who exactly is an employee. If someone is working on my property, but the law does not consider that person to be my employee, then I do not owe that person Workers’ Compensation benefits. States use several criteria to determine whether two parties are in an employer-employee relationship. These are similar to the criteria the Internal Revenue Service uses, such as control over when and how work is performed.

Typically, state regulators do not find a construction worker to be an employee of a project owner. The same cannot be said about independent contractors and employees of subs, however. Some sole proprietor subcontractors who suffer worksite injuries claim Workers’ Compensation benefits under the policies of the contractors who hired them. Often, state Workers’ Compensation law judges rule that these individuals were acting as employees of the hiring contractors, not independent contractors.

In addition, many state laws require an independent contractor who hires a sub to provide Workers’ Compensation benefits to the sub’s employees if the sub fails to obtain insurance. The injured subs or their employees end up collecting benefits even though that was never the intention of the hiring contractors. Consequently, insurance companies can and do charge independent contractors additional premiums when they find that uninsured subs have worked for them.

In a worse case scenario, both the independent contractor and the sub may fail to buy Workers’ Compensation insurance. Leaving aside the legal problems that will result for the employers, this leaves injured workers without sources of the benefits to which they are entitled. Their logical recourse is to sue the project owner. They may seek damages for an alleged failure to maintain a safe worksite or for negligence in the hiring and supervision of contractors. Since the project owners are not the employers of these injured workers, their own Workers’ Compensation policies will not help. Rather, they will have to seek legal defense and the payment of any awards from their liability insurance companies.

For these reasons, project owners should insist and verify that all contractors working on the job, including subs, carry their own Workers’ Compensation insurance. Independent contractors should do likewise with the subs they hire. Project owners may want to supplement their protection by making the independent contractors responsible for verifying that the subs have insurance, and by requiring the independents to hold the owners harmless from any lawsuits resulting from workplace injuries.

Construction is dangerous work. Every contractor setting foot on a job site should carry its own Workers’ Compensation coverage, whether the law requires it to or not.


A New Way to Charge for Auto Insurance: The Company Watches you Drive

For decades, insurance companies have considered drivers’ histories when they calculated auto insurance premiums. They have based prices on a driver’s age, record of accidents and traffic tickets, and how long she’s been driving. Factors such as gender, marital status, and school grades have also been important.

A new way of pricing auto insurance is taking hold, however. It is called usage-based insurance, though it also goes by “pay as you drive” or “mile-based insurance.” Instead of looking at how the driver has performed in the past, this method looks at what the driver is doing now.

All usage-based insurance programs involve the driver reporting information to the insurance company. The most common method uses a technology called “telematics”. A telematics system requires the driver to install a device in the vehicle’s computer port. The device wirelessly transmits information about the vehicle’s use to the insurance company.

The insurance company determines what information it wants. Some may want only the number of miles driven. Others may want that plus information on speed, braking, time of day, and even destinations. The company calculates the driver’s premium based on the information gathered. Those who drive safely or less frequently pay lower premiums than those who do the opposite.

Usage-based insurance offers a number of potential benefits:

  • Careful drivers can reduce their insurance costs
  • Insurance companies can more accurately price their products
  • Consumers have more insurance choices
  • Drivers have an incentive to drive more safely
  • Younger drivers may pay less for insurance than they would otherwise
  • It encourages safer driving
  • It discourages unnecessary driving

However, the system has some important flaws.

  • It may penalize drivers who speed, even though that may be the safest way to drive at a particular time. Conversely, it may reward those who drive too slowly for traffic conditions.
  • A distance-based system may not distinguish between city, highway and rural driving, even though the risks of accidents vary widely among them.
  • It does not capture habits that affect the risk of accidents, such as sudden lane changes without signaling, tail-gating, and talking on the phone.
  • It presents privacy concerns. The insurance company may obtain data on how far, when, how fast, and the destinations where customers drive.

A 2015 report by Visiongain projected that 21.7 million policyholders would have usage-based insurance that year, up 9.5 million from 2014. Progressive Insurance Company has been the most prominent U.S. company promoting a telematics program, which it calls SnapShot. However, several other companies, including Allstate, Liberty Mutual and National General, have introduced it for either personal or business customers.

Metromile, a California-based company, offers insurance buyers a fixed based rate per month plus a charge of a few cents per mile. The per-mile rate varies, depending on risk factors traditionally considered (age, gender, etc.).

As the various technologies develop and improve, more insurance companies will likely adopt them. They will use the promise of premium discounts to tempt customers to use them. At some point, usage-based insurance may become the norm for insurance buyers, rather than the exception.

Recognizing the Basics of Small Business Liability Insurance

To protect a small business from potential lawsuits, liability insurance is necessary. Policies vary greatly, and they cover different classifications of risks for varying costs. Before shopping for a policy, it is important to know a little more about liability insurance. The following paragraphs provide a quick overview.

  1. Liability insurance is available in many different forms. Commercial general liability, which is also called CGL, is a very broad insurance product. It covers claims from accidents, injuries or negligence when the business is at fault. Small businesses may face a wide array of damage charges. Personal injuries, property damage, libel and slander are just a few examples. Product liability insurance covers legal fees for litigation involving a faulty product. It also covers any personal or property damage charges caused by the defective product. Professional liability coverage pays for damages caused by services. It is also called errors and omissions coverage. This is for companies that market a service instead of a product. For example, professionals in medical clinics must have medical malpractice coverage. There are other types of insurance designed for specialty businesses. For example, there are special policies for companies involved only in Internet sales. The nature of the business determines what type of coverage is necessary.
  2. The type of business may influence premium amounts. Insurers classify businesses in several different categories. These classifications play a key role in determining annual premiums. Every business has a certain degree of risk, and some types face many more risks than others. For example, a company that washes windows on skyscrapers would be a riskier business than a tax preparation company. To get a better idea of what to charge, most insurers research the number of claims made by similar businesses. The North American Industry Classification System is commonly used. To find out what kind of risk classification a particular business falls under, discuss the matter with an agent. The size of a business’ payroll and the amount of sales made also contribute to premium amounts.
  3. Liability insurance does not cover everything. General liability coverage does not offer benefits for employees’ work-related injuries and illnesses. Workers’ compensation coverage usually provides benefits for such expenses. Liability coverage does not cover intentional acts or damages sustained from those acts. Employee fights, criminal activity and fraudulent behavior are some examples of intentional acts.
  4. Liability insurance may be a requirement. Several states require some professions to carry liability coverage. If a business uses a vehicle or lets employees drive it, auto liability coverage is also important. Although most states have a specific standard for minimum auto liability coverage, the amounts vary from state to state. It is important to discuss these numbers with an agent. In the event of a claim, liability insurance provides coverage for defense costs, litigation claims and other legal fees.
  5. It is possible to decrease risks. If business owners document certain safety measures taken to reduce or eliminate risks, insurance companies may classify the company as low risk. Smoke alarms, fire alarms, sprinkler systems and multiple fire extinguishers help lower risks. It is also beneficial to train employees in various safety practices. Be sure to make equipment readily available. When vehicles are used for business purposes, make sure they are maintained properly.

Be Prepared: 2015 Farmers’ Almanac Winter Forecast

In a recent report, the Farmers’ Almanac predicted that the winter months of late 2015 and early 2016 will mostly be a repeat of the prior year’s winter, which was marked with extremely cold temperatures across the eastern parts of the Great Lakes and through most of the Atlantic Seaboard. Kentucky, Ohio, the Tennessee Valley, most of the Mississippi Valley, most of the Gulf Coast and the lower peninsula of Michigan are also expected to see unseasonably cold temperatures this winter. The Farmers’ Almanac told New Englanders to expect frigid temperatures that would remind them of last year.

The majority of the central portion of the United States is expected to see winter temperatures that are about normal. This area includes the Great Plains, Indiana, Illinois, Wisconsin, Michigan’s upper peninsula and the central and western areas of the Great Lakes region. For these areas, short spells of bitter cold temperatures mixed with mild to moderate temperatures are expected. Although they are not expected to see anything too extreme, Texans and residents of the South Central states will see a cool winter with periods of cold temperatures.

Temperatures are expected to be milder than average for the Pacific Northwest, the Rockies region, the Colorado Plateau and the Southwest. With last year’s winter season, temperatures were similar in these regions. Experts from the Farmers’ Almanac said that their predictions this year are like winter Déjà vu for them. In many states across the country, last year’s winter predictions came true. They noted that 23 of the states in the East experienced one of the top 10 coldest Februaries on record. Experts recommend stocking up immediately on winter clothing and readiness supplies. This includes everything from sweaters and firewood to water and canned food.

The Farmers’ Almanac said that people who enjoy snow should visit the central and northern parts of the Great Plains, New England or the Great Lakes. The winter months are expected to be stormy over the Atlantic states and the Northeast. For the second weeks of both January and February, experts predict that the weather will be stormier than usual, and this is expected to continue through the middle of March. Storms are also expected to bring precipitation levels that are above normal to the Southeast, the southern region of the Great Plains, the Mississippi Valley, the Atlantic Seaboard and the Gulf coast.

Unfortunately, the drought-stricken Southwest is not predicted to see more rainfall this winter. However, the Pacific Northwest is expected to see higher-than-average precipitation levels. Experts emphasized that the new edition of the Farmers’ Almanac contains much more than dismal winter news for most of the nation. There are also informative and entertaining articles, historic information and educational facts. The latest edition is also full of advice on how to live healthier and more naturally. It contains recipes, a recipe contest, advice for quitting smoking, tips for weaning toddlers, advice for removing garden pests, several life hacks and a list of some of the weirdest places tourists can visit. These are just a few of the many other interesting and useful resources in the book.

One of the most important takeaway points from the weather forecast this year is to be prepared. The Farmers’ Almanac has survived this long because their predictions are mostly right. Stock up on supplies for winter storms and emergencies. Review insurance coverage to make sure the policy is updated with new purchases and includes important items that may become an issue with a winter storm. For example, homeowners should know how to react and who to call if a pipe freezes and bursts. It is also good to know how to prevent such a disaster. To learn more winter preparedness tips and to review coverage, discuss concerns with an agent.


Workplace Group Life Insurance – A Valued Benefit

It’s a call every business owner dreads: An employee’s spouse calls you tearfully on a Monday morning. One of your workers won’t be there anymore – he was killed in a car accident over the weekend. The next question she may have is this: “Was there any life insurance in place from work?”

It’s entirely within your power to answer her “yes.” And then go on to say, “Your husband loved you. Your photo is on his desk. You’re going to be ok.”

What Is Employer Group Life Insurance?

Employer group life insurance provides your workers an easy, convenient way to provide valuable life insurance protection for their loved ones at an affordable price – in some cases without regard to their medical condition or medical histories. Employees can sign up at work, doing the paperwork along with the rest of their benefit paperwork.

Advantages to You, the Employer

By adding life insurance to your list of employee benefits, you are sending a message to your work force that you care about their families, and intend to help make sure that your workers’ families are taken care of should the worst happen.

In certain circumstances, the premiums for up to $50,000 of term life insurance coverage are deductible as a business expense. It’s not a huge amount, by life insurance standards. But it means a widow can spend some time at home with children, or provide her (or him!) with some breathing room to pick up the pieces and move on.

Group underwriting means all your employees can have access to this valuable benefit. Policy issuance is guaranteed for this kind of coverage (governed by Section 7702 of the Internal Revenue Code). You won’t have to look at an employee and tell them no, they don’t qualify.

If you want to offer additional coverage, or if your employees need more coverage, you can offer additional protection for your employees on a voluntary payroll deduction basis. This means additional protection for your workers’ families. Your employees sign up for this voluntary coverage. You deduct the premiums from their paychecks each month, and forward a consolidated premium in a convenient list bill.

Advantages to Employees

These days, people are used to getting their insurance coverage from work. Workers who have access to workplace life insurance plans are less likely to put off getting much needed coverage on the side.

Group underwriting can help make coverage more affordable for employees with medical issues that make it difficult or impossible to get affordable life insurance on their own.

Some policies are portable: If the employee leaves the company, he can take the coverage with him. This is crucial for people who have developed health conditions that would make them uninsurable prior to leaving the company.

For many of these plans, there are no upcharges for preexisting conditions.


Workplace life insurance policies frequently offer only a limited amount of coverage. This is especially true of guaranteed issue policies. Also, depending on the policies and carrier, group-underwritten workplace life insurance policies can be less portable than other kinds of life insurance policies. Your agent can work with you and your employees to combine a workplace group insurance policy and additional coverage on a voluntary basis to provide the best possible package, protection and value for your employees.


Convenience Store Owners Face Big Changes Mandated by the Department of Labor

With the latest policies from the Department of Labor, convenience merchants must prepare for stronger enforcement of labor laws. In recent months, the DOL has been occupied with researching and analyzing the practices of convenience store owners. It is important for anyone who owns a convenience store to be aware of the new changes that affect their use of independent contractors and paying overtime to workers. Penalties may be imposed for owners who use independent contractors.

Using the Fair Labor Standards Act, the DOL suggested a new rule that would enhance protection of overtime for more than 5 million workers during the initial year of its commencement. The rule would result in an increase of the salary threshold that is enacted when a worker is not eligible for overtime. The previous threshold was over $23,500 for salaried workers in the 40th percentile. An increase of about $970 per week brings the total past $50,000 every year. However, the DOL was interested in more than just overtime.

After the DOL made its overtime rule proposal, it also released a guidance that was meant to clarify the incorrect classifications of workers as independent contractors. According to the FLSA, the DOL said that most workers were employees and not independent contractors. There was a six-factor test formulated by the guidance to address the issue and determine the status of a worker. Since the potential penalties for the incorrect classification of workers are large, this is a major issue for convenience store owners. In addition to this, the ACA fees and tax code could yield far more expensive penalties.

For example, consider a worker who is wrongly labeled as an independent contractor. If that worker is reclassified as an employee, the result is a lower number of full-time employees receiving coverage offers. The incorrect classification would yield a penalty equaling $2,000 multiplied by the number of full-time employees in the company.

Both DOL changes are important enough for all convenience store owners to review them and understand the terms completely. For c-store business models, the overtime proposal is enough to greatly impact a company’s chances to hire full-time workers. The DOL’s guidance may also result in many companies making changes to their hiring structures. Both actions show that the DOL is taking steps to be proactive in matters of employment. When read carefully, the guidance shows that the DOL is putting employers on notice about strict and intensifying actions they plan to take.

Convenience store owners across the nation should start researching the changes, reviewing their business models and making the changes necessary to comply and continue business operations. Companies choosing to ignore the new rules could face penalties that have the potential to shut down


10 Reasons Why Everyone Should Have an Estate Plan

Estate planning is one of the most grim financial topics. However, it is also one of the most important components of financial preparedness. Never avoid estate planning because it is a dismal thought. Having a solid estate plan in place is the only way to make sure assets are distributed as preferred and funeral plans are covered. If a person dies and does not have an estate plan, the surviving spouse or family members have to pay for funeral expenses and a wide variety of other expenses related to the person’s death.

Understanding Estate Plans

Every estate plan should have a life insurance policy, a will and a power of attorney form. Life insurance provides a death benefit to cover funeral costs and some living expenses for a named beneficiary. Wills are necessary for distributing assets, and a power of attorney gives another person the power to act on behalf of the deceased. A durable power of attorney form gives another person the capability to make decisions regarding medical care at the end of life for the person who signs the form. If the person dies, the durable power of attorney also has the power to act on behalf of the deceased for financial reasons. Medical power of attorney forms are used for designating power to make only medical decisions. If a person dies without a power of attorney named, the next of kin will be responsible for making decisions. Trusts are useful estate planning tools as well. They are instruments that distribute money in increments to designated heirs as specified by the creator of the trust.

10 Reasons To Make An Estate Plan

Most people think estate planning is something to think about in the future or after they retire. Anyone can die while they are still young, and tragic deaths of young people often leave their spouses and children struggling for money. These are the top 10 reasons to have an estate plan.

1. Provide for a child with special needs. For those who have children receiving Medicaid or SSI, additional money may be needed. A trust provides more money for medical expenses that may not otherwise be covered.

2. Pick the person of choice as power of attorney. It is always better to choose a person to appoint as power of attorney. A person’s next of kin may be irresponsible and not as fit as another preferred individual to handle medical or financial decisions.

3. Protect younger children. People who die without an estate plan often leave their children at the mercy of the court. If there is no spouse living, the court usually decides who will care for the children.

4. Leave money to ensure financial security of family members. Life insurance policies are useful for leaving money to heirs. Larger amounts provide enough for living expenses, child care costs or even college tuition.

5. Choose how assets will be distributed. When a person dies without a will, state laws dictate how assets will be distributed. Relatives often come into the home after the person dies and grab what they want or fight with one another over belongings. Having an estate plan gives the creator the opportunity to specify who should receive specific items.

6. Provide for all children. For those who have children from different partners, an estate plan gives the freedom to name specific children for inheriting money or assets.

7. Keep important assets in the family. Many people worry about assets or family heirlooms falling into the wrong hands. If an estate plan is in place, responsible heirs can be named.

8. Stay out of probate court. Assets of people who die without estate plans are subject to probate proceedings. These delay assets getting to survivors, and probate proceedings come with many fees.

9. Name retirement beneficiaries. If an estate plan is not in place, IRA heirs will face tax penalties.

10. Keep a business safe. People who own a business can use an estate plan to specify who will take over the business. Family members often lose control of businesses without estate plans.

What is Expected of You as a Plan Administrator

If you manage an employee benefit plan under the Employee Retirement Income Security Act (ERISA), you are considered a fiduciary. That means that the federal government expects you to act in accordance with the strictest ethical standards for fair dealing and good faith recognized under the law. It’s a lot of responsibility, of course. But these assets are critically important to employees’ retirement security, and therefore the federal government expects its plan administrators to act as effective watchdogs over these assets.

As a fiduciary, you are expected to adhere to the following standards:

  • You must act solely for the benefit of your plan beneficiaries, with the exclusive purpose of providing benefits to them.
  • You must be prudent in your decision-making.
  • You must act in accordance with published plan documents (to the extent these documents themselves are in accordance with the ERISA law.).
  • You must keep plan assets diversified.
  • Your plan expenses must be reasonable.


That said, of course, not every plan sponsor is an investment, pension or health care expert. In these cases, your role as a fiduciary requires you to hire outside expert help. But you are still responsible to provide oversight over the process.

Administrative best practices

Communicate plan benefits, terms and eligibility criteria to plan beneficiaries, using approved documents.

You must ensure your company is in compliance with other federal laws affecting plan benefits. For example, you must provide extended health insurance benefits to qualified employees and dependents under the Consolidated Omnibus Reconciliation Act, or COBRA. This in itself requires a concerted communications and compliance effort on the part of plan administrators.

Additionally, familiarize yourself with the Health Insurance Portability and Accountability Act This law created protections for individuals with preexisting conditions seeking medical insurance, and also imposes a number of privacy obligations on employers wit possession of individually identifiable medical information on employees and customers.

Focus on Processes

Occasionally, plan beneficiaries or regulars may have an issue with how your plan performs, or how you or the other members of the plan administrative team conduct themselves. In these cases, investigators will focus on the decision-making process. To minimize your personal exposure to risk, take the following measures:

  • Have a clear and specific written investment policy statement.
  • Make investment decisions in accordance with your investment policy statement and other plan documents.
  • Have a clear and objective criteria in place for selecting outside vendors.
  • Set clear targets for diversification in plan assets.
  • Consider putting directors and officers’ insurance in place to help shield you and your fellow fiduciaries from errors or omissions in your role as a fiduciary.
  • If you allow 401(k) beneficiaries control over their investments, give them at least three distinct investment options.
  • Monitor the decisions of investment professionals you hire to make decisions on behalf of your plan.
  • Document your decision-making processes.
  • Keep minutes of plan administrator meetings.
  • You must communicate your plan benefits, terms and eligibility criteria to plan beneficiaries, using approved documents.
  • Establish a formal grievance and appeals process and see that this process is communicated to plan beneficiaries and is simple to use. If there are fiduciary breaches, beneficiaries may have the right to sue for damages under ERISA.

For more information, or to schedule a review of your processes and documents,  contact your employee benefits professional.

Does the ACA Mean Possible Liability for Employers

With the Affordable Care Act now a reality upheld by the Supreme Court in King v. Burwell, and the employer mandate upon us, it’s time for employers and plan sponsors to address the possible conflicts and liability issues that could arise as employers and employees adjust to the changes.

One possible flashpoint: As the employer mandate affects more employers this year and next year, many employers may be contemplating attempting to restructure their workforces to avoid or minimize the impact and reduce the number of employees who are entitled to an employer-sponsored health plan.

Be very careful about making these kinds of changes: Section 510 of the Employee Retirement Income Security Act (not the ACA!) prohibits employers from taking employee action or structuring their businesses solely to improperly deny granting employees the right to benefits due the under ERISA or the HSA.

Here’s the text:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, this title, section 3001 [29 USC §1201], or the Welfare and Pension Plans Disclosure Act, or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this title, or the Welfare and Pension Plans Disclosure Act.

For example -Indeed, it’s already happening:

In Marin v. Dave & Buster’s, attorneys have already filed a lawsuit based on this specific provision, and sought ‘class action’ status for as many as 10,000 employees nationwide. The lead plaintiff, Maria De Lourdes Parra Marin, claims that Dave & Buster’s, which owns and operates a combination restaurant/video arcade business with 72 stores in 30 states, illegally reduced her hours to avoid paying mandated benefits.

According to her complaint, she was hired as a full-time employee at the Times Square store in New York City in August of 2006, and routinely worked full time in the kitchen there, 30 to 45 hours per week.

However, in June 2013, she alleges, the company dramatically held a meeting in which the store general manager told employees that the ACA would cost the business as much as $2 million, and therefore they intended to reduce the number of full-time employees at the store from 100 to 40. Ms. Marin’s hours – and those of many others – were subsequently reduced to less than 20 hours per week. For the next 15 months, her work hours never broke 30 – which happens to be the cutoff point to qualify for full-time status under the ACA. Her weekly income dropped from $450-$600 per week to $150-$375.

Ms. Marin also points to statements by company executives in the media expressing concern that the number of full-time staff at the company needed to be “right-sized,” and to language in a registration filing with the Securities and Exchange Commission in which the company warned investors that the ACA would negatively impact their earnings if they were forced to pay more in health care coverage for employees.

Nobody knows how the claim will play out in court. Section 502 of ERISA doesn’t allow for outsized punitive damages, but it could force ‘equitable restitution.’

Meanwhile, Dave & Buster’s has filed a motion to dismiss the suit, raising the following points:

  • The employer mandate did not exist in 2013, when they reduced their full-time headcount.
  • The law does not apply to benefits the worker is not yet entitled to
  • They don’t have a ‘right’ to employer-sponsored health insurance, anyway, since employers always had a right to drop coverage altogether and pay a fine, if they choose.

The suit is still pending in the Southern District of New York. A lot of employment lawyers are watching this case closely. If Marin wins her suit, any business potentially subject to the employer mandate can expect a lot more similar suits in the future.


The combination of potential employee actions arising from disputes over employee classification, whether they worker is part-time or full-time under the law, potential fiduciary liability and even personal claims against directors and HR staff, mean that smart employers will be taking a hard look at coverage for employment practices and employee benefis. These plans are almost never included with your general liability coverage. Discussing these potential coverage gaps with you agent is best done before a lawsuit occures and not after it may happen, most especially since policies excude incidents that occur before the policy was in effect.

Condo and Townhome Owners are not Covered by their Homeowners Association

If you live in a Condo, your Homeowners Association (HOA) almost always just covers the HOA property-not your own property or liability. The HOA property is basically just the building. Anything inside your unit is probably not covered by your HOA. The HOA has liability if the entity was sued; however, this does not cover you personally.  In most cases, this is also applicable to townhome owners, but in some cases, the HOA requires each townhome to get their own separate exterior building coverage. Let’s review exactly what a separate Condo owner policy covers and why every homeowner in an HOA needs their own coverage.

Interior Building Property

This covers things like your interior walls, floor coverings, cabinets, countertops or anything that your HOA policy does not specifically cover. Your HOA policy might cover some components of your interior space, such as your cabinets. However, if you replace your cabinets and countertops, the higher-cost custom improvement will not be covered. Another example of what is not covered is your window coverings, e.g., if you installed shutters. Basically, any additional features and alterations are almost never covered. Most Condo policies come with a minimal amount of interior building coverage; this is often not enough. This is why it’s best to add up what it would cost to replace your interior. It’s not unusual for this amount to come out to 40k or more.  Your insurance can be increased to meet the coverage amount you need. If you live in a townhome and your HOA does not cover your building, you will need to get a homeowners-type policy. However, in most cases, the HOA will cover the building. If this is the case, then a Condo type policy is all you would need.

Personal Property

This covers all your interior property, such as clothes, furniture and electronics. Basically this is anything that is not attached to the building. There are special limitations for things like Jewelry, Collectables, Computers and Firearms. If you have any special item you are concerned about and want more coverage for, you may be able to increase the coverage sub-limit, or you may be able to purchase a floater. A floater enhances the coverage on these special items and covers it for a greater amount than what your policy would. Also, the good news about personal property is that this will also cover your property off the premises, such as in your car or while you are on vacation. As with anything, special limitations may apply and all items should be discussed in detail with your agent.

Living Expenses

If you are displaced from your condo due to a covered loss, then your additional living expenses will be picked up in your policy, subject to the coverage limitations. For a short-term situation, an adjuster may put you up in a hotel. For a longer-term situation, the adjuster may attempt to find another condo as temporary housing. Some policies cover up to a year, and others may cover up to two years. Some policies have maximum coverage limits, while others have wording that is called “actual loss sustained.” If you have a cover limitation and the cost for short-term rentals is significantly more, this coverage should be increased beyond the default amount included. If you have a policy that states “Actual Loss Sustained,” then there is really no cover limitation; however, you would be placed in a similar-sized condo and any living expense beyond what you normally pay will be covered. This is also the case if you have a coverage amount, but you are no longer covered if you reach the coverage limit.


It’s a misconception that as a unit owner, you may be covered under your HOA’s liability policy. This is only the case if the HOA is faced with a covered lawsuit. If you are personally name in a lawsuit, the HOA policy will not cover you or provide any legal defense. For example, let’s say a fire started on your property that spreads to your neighbors’ property. In that case, you may be responsible for covering their personal belongings and repairs. This is just one example. Even if there is an injury in the common area, they can still name you. The advantage of a having liability is that it covers legal defense, even if you are ultimately found not to be liable. Those who have a net worth they want to protect should get an umbrella policy.

Loss Assessment

This is an extremely important coverage for those who live in an HOA. This would cover an HOA assessment due to an insurance shortfall. The HOA may not have enough coverage to cover a claim; if they levy a special insurance assessment, your policy will cover it up to the amount stated. In some cases, you may have to ask for this coverage, as it may not be automatically built into the policy. Even if it is, typically this is a minimal amount. This coverage can and should be increased to the maximum amount of coverage that they will allow-often the maximum amount is 50k.

A Condo policy is a package that includes most or all of these coverages. However, the minimum amounts are bare bones, and that is why it’s important to both add and increase coverage. If an incident occurs that affects your unit, in most cases the HOA policy will not cover you. Then you will be forced to pay out of pocket to cover a claim; in some cases it can be over 10k or even 100k. The cost of these policies in most cases is a fraction of what a homeowner’s policy costs, and it covers so much-from property to liability to HOA insurance assessments.