Who Is Required to Obtain HOA Insurance?

If you've been asked to join an HOA board or you've just taken over as treasurer of a community association, one of the first questions that comes up is whether your association is legally required to carry insurance. The answer in Illinois and in most states is yes, but the actual requirement is more specific than most board members realize.

This guide breaks down exactly who is required to carry HOA insurance, what coverage is mandated by law versus what's required by governing documents, and what happens to board members personally when the association fails to maintain required coverage.

The short answer: Most HOAs are legally required to carry insurance

In Illinois, nearly every community association is legally required to carry a specific package of insurance coverage. The requirement comes from three separate sources, and each one must be satisfied:

• State statute for condominium and community associations above a certain size
• The association's own governing documents (declaration, bylaws, CC&Rs)
• Mortgage lender requirements when owners in the community have loans secured by property

An HOA can technically exist without insurance, but doing so almost always violates at least one of those three requirements. And in nearly every case, the violation creates personal liability exposure for the individuals serving on the board.

Below is what each source actually requires.

Requirement #1: Illinois state statute

Illinois regulates community association insurance through two primary statutes, depending on what type of community the association governs.

The Illinois Condominium Property Act (765 ILCS 605)

Condominium associations in Illinois are governed by the Illinois Condominium Property Act. Section 12 of the Act imposes specific insurance requirements that every condominium association must follow.

Under the Act, every Illinois condominium association is required to carry:

• Property insurance on the common elements and (depending on the declaration) the units themselves, at full replacement cost, against all risks of direct physical loss
• General liability insurance with a minimum limit of $1,000,000 per occurrence, covering the association, the board, the management company, and their employees
• Fidelity coverage for any association with six or more units, covering all individuals who handle association funds (board members, managing agents, employees, and in some cases contractors with funds access)
• Directors and Officers liability in an amount determined reasonable by the board

The fidelity bond in particular has a specific calculation: the coverage amount must equal at least three months of assessments plus the total of the association's reserve funds. For a mid-sized condo association with $150,000 in annual assessments and $80,000 in reserves, that's a minimum bond of approximately $117,500.

The Common Interest Community Association Act (765 ILCS 160)

Non-condominium community associations in Illinois (master-planned communities, townhome HOAs, single-family HOAs) are governed by the Common Interest Community Association Act. Associations with 10 or more units fall under the Act's insurance provisions.

The Act re quires covered associations to carry:

• Property insurance on all association-owned property and common elements
• Commercial general liability with minimum limits of $1,000,000 per occurrence
• Fidelity bond for associations with funds in excess of statutory thresholds
• Directors and Officers liability coverage

Small associations below the 10-unit threshold are not legally required under the Act to carry this coverage. But they almost always are required to carry it by their governing documents and by mortgage lenders, so the practical effect is the same.

Single-family HOAs below statutory thresholds

Very small associations (fewer than 10 units) or associations that do not fall under either Act may not be subject to statutory insurance requirements. But this is rare, and even these associations almost always face the same requirement from their governing documents and lenders.

Requirement #2: The association's governing documents

Every community association is created by a recorded legal document called a declaration (for condominiums) or declaration of covenants, conditions, and restrictions (CC&Rs for HOAs). These documents almost always require the board to maintain specific insurance coverage, and these requirements are often broader than state law.

Governing documents typically require the board to maintain:

• Property coverage at full replacement cost for all association-owned structures and common areas
• General liability coverage with specified minimum limits
• Directors and officers liability coverage for the board
• Fidelity or crime coverage on any person handlin g association funds
• Flood insurance if any portion of the property is in a FEMA flood zone
• Workers compensation if the association has employees
• Specific additional coverages required by the community's unique circumstances (garage keepers for parking structures, liquor liability if the community rents out clubhouses, etc.)

Here's what most new board members don't realize: failing to maintain the insurance required by the governing documents is a breach of fiduciary duty by the board. That breach creates personal liability for the individuals on the board. This is why Directors and Officers insurance is not just required by statute, it's the coverage that protects volunteer board members when they find out the hard way that something they were supposed to buy was never actually in place.

Requirement #3: Mortgage lender requirements

Most owners in a community association have a mortgage on their unit. Mortgage lenders (and the secondary market entities that buy those loans, like Fannie Mae, Freddie Mac, FHA, and VA) impose their own insurance requirements on the association that holds the property.

For a mortgage to be eligible for purchase by Fannie Mae or Freddie Mac, the association must maintain:

• Master property coverage at 100% replacement cost
• General liability with a minimum of $1,000,000 per occurrence
• Fidelity/crime coverage equal to three months of assessments plus reserves (for most projects)
• Flood insurance where applicable
• Directors and officers coverage where required by state law

If the association fails to maintain these coverages, owners in the community will find it increasingly difficult to get their units financed or ref inanced. In practice, this often becomes the first place board members hear about an insurance gap: an owner calls to say their lender is refusing to close because the association can't produce a compliant certificate of insurance.

What happens when an HOA fails to maintain required coverage

When an association fails to carry the insurance required by statute, governing documents, or lender requirements, the consequences land in three places.

1. Personal liability for board members

Failing to maintain required insurance is a breach of the board's fiduciary duty to the association. When that breach causes harm (an uninsured claim, an owner's inability to close a sale, a special assessment to cover a loss that should have been insured), the individual board members who approved or allowed the gap can be sued personally.

The D&O policy would ordinarily respond to this kind of claim, except that if the board failed to maintain D&O coverage itself, there's no policy to respond. Board members' personal assets are then directly exposed.

2. Special assessments to unit owners

When an uninsured loss occurs (a fire in the clubhouse, a slip-and-fall lawsuit, a defalcation by a dishonest bookkeeper), the association must still pay. The only funding source available is a special assessment charged to every unit owner on a pro-rata basis.

A $500,000 uninsured liability claim in a 50-unit association translates to a $10,000 special assessment per unit. Unit owners who can't pay face liens and potential foreclosure. Those who can pay have grounds to sue the board for the financial harm caused by the insurance gap.

3. Loss of marketability for owners

Condominium and community association units become unsellable when the association can't produce a compliant certificate of insurance for a buyer's lender. Owners who need to sell for any reason (relocation, downsizing, death, divorce) find themselves trapped. This often becomes the crisis that finally gets the board's attention.

How to verify what your HOA is actually required to carry

Most boards make the mistake of assuming their current policy complies with all applicable requirements. In our experience reviewing Illinois community association programs, a significant percentage of associations have at least one coverage gap against their own governing documents or statutory requirements.

Here's how to verify compliance for your association:

Step 1: Pull your governing documents

Locate the declaration (for condos) or declaration of covenants, conditions, and restrictions (for HOAs), along with the bylaws. The insurance requirements are typically in an article titled "Insurance" or "Insurance and Bonds," usually appearing in the middle of the declaration.

Read this article carefully. Note every specific coverage and minimum limit the documents require the board to maintain.

Step 2: Identify which state statute applies

Is your association a condominium (governed by the Illinois Condominium Property Act) or a common interest community (governed by the Common Interest Community Association Act)? How many units does it have? The answers determine which statutory requirements apply.

Step 3: Review your current insurance declarations page

Pull the declarations pages for every active policy the association carries. Line them up against the requirements identified in Steps 1 and 2. You're looking for any gap between what's required and what's in place, including:

• Coverage types the documents require that aren't in your current program
• Coverage limits below the required minimums
• Replacement cost values that are outdated (construction costs in Illinois have risen significantly since 2020, and many associations are insured at values set years ago)
• Fidelity bond amounts that don't account for current assessment levels and reserve balances

Step 4: Get an independent review

Most boards don't have the time or expertise to do this kind of review in-house. An independent insurance broker who specializes in community associations can review your governing documents alongside your current policies and identify any compliance gaps. This is a service we provide at no cost for Illinois associations considering a coverage review.

Illinois statutory minimum coverage requirements at a glance

Here's a summary of the minimum coverages typically required for Illinois community associations. Your governing documents may require more; they cannot require less than what the statute mandates.

Governing documents often add coverages on top of this baseline: umbrella liability, garage keepers (if the community has a parking structure), pollution liability, employment practices liability, and others depending on the community's structure and operations.

What about outside of Illinois?

HOA insurance requirements vary significantly by state. While the structure is similar (state statute + governing documents + lender requirements), the specific minimums and coverage mandates differ. States with the most detailed community association insurance statutes include Florida, California, Texas, Virginia, and Colorado.

Pro Insurance Group works with community associations in 40+ states. If you are an association board member outside Illinois and want to verify what your state requires, we can walk you through the applicable statute and review your current program.

Frequently asked questions

Is HOA insurance legally required in Illinois?

Yes, for most associations. Condominium associations of any size and community associations with 10 or more units are required by statute to carry property, general liability, fidelity, and directors and officers coverage. Smaller associations often face the same requirements through their governing documents and mortgage lender rules.

What happens if our HOA doesn't carry D&O insurance?

Board members are personally liable for decisions made in their board capacity. Without D&O coverage, any lawsuit against the board (rule enforcement disputes, budget decisions, vendor contracts, employment matters) can reach the personal assets of individual board members. It's the single highest-leverage coverage any HOA can carry and it's required by Illinois statute.

Does the HOA insurance cover damage inside my unit?

Usually not. The ma ster policy covers common elements and (depending on your declaration) the original unit interiors as built. Owners need a separate HO-6 condominium unit-owner policy to cover personal belongings, interior improvements, loss of use, and personal liability. The interaction between the master policy and the HO-6 is controlled by your governing documents.

Who enforces Illinois HOA insurance requirements?

There's no single enforcement agency. Enforcement happens through private action: owners suing the board for failing to maintain required coverage, lenders refusing to finance unit sales, and claims that expose gaps after a loss occurs. The absence of a regulatory body doesn't reduce the board's legal obligation, it just means violations often aren't discovered until a loss or a sale triggers scrutiny.

Can HOA board members be sued personally?

Yes, in Illinois and in most other states. Board members owe fiduciary duties to the association. Breaches of those duties, including failing to maintain required insurance, can expose individual board members to personal liability. Directors and Officers insurance is specifically designed to respond to these claims, which is why carrying adequate D&O coverage is both statutorily required and practically essential.

How often should we review our HOA insurance?

At minimum, annually at renewal. A more thorough review (comparing coverage structure against current governing documents, re-appraising property values, reassessing whether limits are still appropriate) should happen every two to three years, or whenever the association makes a significant change such as adding an amenity, hiring staff, or substantially increasing reserves.

Get an independent compliance review

If you are a board member or property manager in Illinois and you are not certain your association's insurance program complies with the applicable statute, your governing documents, and lender requirements, this is worth verifying. A 30-minute review can surface gaps that would otherwise only come to light after a claim or a sale.

Pro Insurance Group works with community associations across Illinois and nationally. We review your governing documents alongside your current policies, identify any compliance gaps, and shop multiple specialty carriers to find the right combination of coverage and pricing.

Request a Community Review

Or call us directly at 833-776-4671.

About the author

Neal Fusco is Vice President of Commercial Lines at Pro Insurance Group. With 25+ years of experience across both the carrier and agency sides of the insurance industry, Neal specializes in homeowners associations, commercial trucking, workers compensation, and complex risk placement. Neal personally leads HOA submissions and works directly with boards and property managers on coverage form evaluation, limit adequacy analysis, and claim advocacy.

Direct: 847-450-0389 | Email: nfusco@proinsgrp.com

This article is for general informational purposes and does not constitute legal or insurance advice. Actual coverage requirements and statutory applicability depend on your association's specific circumstances, governing documents, and state law. Contact Pro Insurance Group or a licensed Illinois attorney for guidance specific to your situation.

Related HOA insurance resources

• HOA Insurance & Community Association Coverage (main service page)
• HOA Insurance Cost 2026: Real Premium Ranges by Community Size
• D&O Insurance for HOA Boards: What Directors Need to Know
• HOA Insurance in Illinois: What Every Board Member Must Know
• HOA Master Insurance Policy: What It Covers and Who Pays