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The importance of fidelity bond coverage in HOA insurance

Fidelity bond coverage is crucial to keeping your Homeowner’s Association (HOA) safe from financial losses due to fraud or dishonesty by board members or workers. Here’s what you need to know about it, especially in the context of Texas laws. 

What is fidelity bond coverage?

A fidelity bond protects the HOA against losses from fraud or dishonest acts by people who handle the group’s funds, including board members, workers and others who can access the HOA’s money. 

Why is fidelity bond coverage needed?

Fidelity bond coverage is vital because it gives the HOA a financial safety net. It helps the group recover funds lost due to theft or fraud, keeping finances stable and trust high in the community. 

Key parts of fidelity bond coverage

When looking at fidelity bond coverage, HOA boards should focus on these parts:  

  • Coverage amount: Ensure the bond amount is enough to cover losses. Usually, the coverage should match the total money the HOA handles.  
  • Named insured: The bond should name the HOA the insured, ensuring the group receives direct protection.  
  • Scope of coverage: Check that the bond covers all people who handle the HOA’s funds, including board members, workers and contractors. 

By examining these key parts, you can ensure your HOA is well-protected against financial risks. 

Texas-specific requirements

In Texas, fidelity bonds must follow state insurance regulations. The Texas Department of Insurance (TDI) oversees these requirements to ensure fair and adequate policies. Here are some points to consider:  

  • Policy approval: Your insurance company must file your fidelity bond policy with the TDI and obtain approval before issuing it.  
  • No deductibles: Policies covering HOAs should not have deductibles, ensuring complete coverage of any losses. 

Knowing these rules helps ensure your HOA’s fidelity bond coverage meets all needed legal standards. 

Securing your HOA

Fidelity bond coverage is vital to an HOA’s risk management plan. By knowing the key parts and following Texas laws, your HOA board can protect your community’s financial health and maintain trust among residents.