HOA Insurance Glossary


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Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.


A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics. (Americanism: In most other countries the individual is known as “mathematician.”)

Admitted Company

An insurance company which is licensed in the state in which the policy is purchased. Admitted carriers in the state of California must follow guidelines set forth by the California Department of Insurance. In addition, they are required to file all forms and rates for approval from the DOI.Admitted carriers are part of the California Insurance Guarantee Association (CIGA) which provides up to $500,000 in protection for policy holders should their carrier go out of business.


An individual who sells and services insurance policies.

There are two types of Insurance Agents:
1. An Independent Insurance Agent – represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. The agent’s commission is a percentage of each premium paid and includes a fee for servicing the insured’s policy.
2. Direct or career agent – represents only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent. These agents are sometimes referred to as “captive agents” because they are unable to sell policies form any other company except for the one they represent.

Aggregate Limit

Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.

Bare Walls Coverage

When the condominium association’s master policy only provides coverage to the common area and stops at the drywall of the unit.

Blanket Deductible

This is a deductible that applies to all buildings or locations covered by a policy.

Boiler and Machinery Coverage

Covers losses resulting from the malfunction of boilers and machinery. This coverage is usually excluded from property insurance creating the need for this separate product.


Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.

Broker Agent

Independent insurance salesperson who represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant’s coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker.

Broker of Record Letter

A broker of record letter is a written statement signed by an insured advising an insurer that a particular broker or agent shall act as the insured’s representative.

Building Code and Ordinance Coverage

An additional line of protection that pays for items that need to be added as part of the rebuilding process in order to bring the property up to current building codes.

Captive Agent

Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions.


An event that causes major losses to many insureds at the same time. Examples of these types of losses are earthquakes, hurricanes, and wildfires.


aka Covenants Conditions and Restrictions. These are the rules that govern how an association is defined and how responsibilities are divided up. Things such as how the complex will be rebuilt after a loss, whom is responsible for care control and custody of a portion of the building, and whom is responsible for insuring the unit or the common area of the development are all in the CC&Rs.

CIGA – California Insurance Guarantee Association

The State Reinsurance program that protects insureds from admitted insolvent carriers for up to $500,000.


In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.

Coverage Amount

The dollar amount of protection provided by an insurance company, towards the replacement of the insured’s property.

This stands for Directors and Officers coverage and it is the liability coverage that protects the board of directors from the mistakes that they might make in their function as officers of the association.


The amount that the insurance company takes away from a claim settlement and the insured is responsible paying for. This can either be a fixed dollar amount or a percentage of the total insurable value of the building.

DOI – Department of Insurance

The branch of California government in charge of regulating insurance companies that do business in CA.

E&O Policy

This is a policy that your property manager should have and it protects the manager from mistakes that they make in their capacity as property manager.

Earthquake Zones

An area that is designated as the territory most likely to be affected if an earthquake occurs along a fault located in this area.


A change to the policy that modifies the coverage provided.


Items or conditions that are not covered by the general insurance contract.


Measure of vulnerability to loss, usually expressed in dollars or units.

Extended Replacement Cost

This option extends replacement cost loss settlement to personal property and to outdoor antennas, carpeting, domestic appliances, cloth awnings, and outdoor equipment, subject to limitations on certain kinds of personal property; includes inflation protection coverage.


Relating to or involving a confidence or trust. An insurance broker acts as a fiduciary on behalf of the insured. An agent is acting with a fiduciary responsibility towards the insurance company.

A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.


When an insurance company goes out and looks at a property to make sure that its current condition reflects what was given at the time the application was submitted.

Insurable Interest

Interest in property such that loss or destruction of the property could cause a financial loss.

Insurable Value

The potential amount the insured would lose if the and would need to be paid in order to replace an object if it was completely destroyed. In the case of real property it would be the value of the structures on the property without taking into account the land value of the property.

Insurance Clause of the CC&Rs

This section of the CC&Rs states the requirements that the association must follow when insuring the complex. This such as how much fidelity coverage, who is responsible for insuring what portions of the complex, and what type of coverage, is needed.

Insurance Disclosure

This is the form that per California code must be given to all unit owners on an annual basis, that shows exactly what coverage the association has purchased.

Interior Betterments

These are the items located within a condo unit. Examples of interior betterments are wall coverings, floor coverings, kitchen cabinetry, and bathroom fixtures.

Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.

Liability Insurance

Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.

Liquor Liability Coverage

This is a liability coverage that protects an association from the lawsuits that might arise from the serving of alcohol in the common areas of the condominium or homeowners association.

Loss Assessment

when an individual is part of a either a condominium or homeowners association this is the special assessment that will arise from a claim that was covered by the associations policy. This assessment covers both the deductible that the association owes as well as any part of a loss that was not covered because the loss exceeded the amount of coverage in the policy.

Loss Control

All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and non-insurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self insuring, and other techniques that minimize the risks of a business, individual, or organization.

Loss Ratio

The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company’s underlying profitability, or loss experience, on its total book of business.

Loss Reserve

The estimated liability, as it would appear in an insurer’s financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.

Loss Runs

This is a document that is provided by the insurance company that shows exactly when, how much and what type of losses were incurred by the condo association.

Losses Incurred (Pure Losses)

Net paid losses during the current year plus the change in loss reserves since the prior year end.

A company that compiles construction cost data across the country. Many times these Marshall and Swift computations are used to determine how much property insurance is necessary to cover all the costs associated with rebuilding should a loss occur.

Master Policy

This is the policy that protects the association from most types of property loss and from general liability lawsuits. The exact scope of the coverage will vary with each contract’s exclusions.


The act of limiting the amount of loss that occurs once a loss has begun to happen. For example, once a water leak is detected, shutting off the water and getting rid of the water that has already caused damage so that you stop the further spreading and increase of the loss.


An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn’t have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected not intended by the insured.

Original Building Standard

The state of the interior betterments at the time the building was built or converted condominiums.

Something that can be the cause of a claim to arise. In property insurance they are events such as earthquake, hurricane or fire.


The money paid to an insurance company to have them provide coverage.

Probable Maximum Loss

On an actuary basis the most damage a building will sustain during an earthquake given its proximity to fault, construction type, and soil underneath the building.


It is a majority needed to conduct business on behalf of the association.

Rating Factors

Those aspects of an item that are being insured change the likelihood of a loss occurring. For example in earthquake insurance rating factors would be the soil under the building, proximity to a fault, the type of construction and the construction materials used.

Replacement Cost

The cost of replacing an insured object such a building or furniture without taking into account any depreciation that might have occurred to the insured item.

Replacement Cost Plus – (extended replacement cost)

When an insurance company provides for either abnormal inflation or demand surge which has caused an increase in the cost of replacing the object beyond the anticipated replacement cost.

Reserve Account

This is the separate account that an association should have in which it puts money that has been collected from owners on a monthly basis for future repairs to the complex.

When the policy is terminated prior to the expiration date at the policyholder’s request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.


The amount by which assets exceed liabilities.


An amount less than the full building value that is applied to certain aspects of coverage. An example of this would be when a building is insured for $1,000,000 and there is a $15,000 limit for mold damage. The limitation for mold damage is a sub limit.


This is the federal terrorism insurance coverage that was created after 9/11, to pay for federally certified acts of terrorism.


The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.


The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

Unit Interior Coverage

The insurance coverage needed to protect the improvements from the drywall in on a condominium association.

Unit Owner Policy

This is the policy that a unit owner will purchase to protect him/herself from personal lawsuits and their personal property located in the unit. This policy also provides coverage for those items that are not covered by the master policy and for any assessments that might arise from a claim against the association’s master policy. This is also referred to as an HO-6 policy in the insurance industry.