Loss assessment coverage is not something that is typically covered to a great extent in a standard condo insurance policy but is usually available as additional coverage that can be added-on to a policy through an endorsement or rider. The purpose of the coverage is to protect the homeowner from damage that occurs to a common area of the HOA that the condo is a part of, of which the condo owner may be assessed a portion of the repair costs.
- Loss assessment coverage is meant to protect the homeowner from damages that may occur in a common area of the condo association that is in excess of the HOA master policy coverage limit.
- Loss assessment coverage is typically included in the standard condo insurance policy to a small amount. A typical standard limit is $1,000.
- Additional loss assessment coverage is typically extremely inexpensive to purchase.
What is loss assessment coverage?
Being a condo owner within a homeowners or condo owners association (HOA) comes with its own unique set of circumstances insurance-wise. Every HOA has some sort of master policy, which the members of the community pay for through their dues. This master policy is designed to protect the community as a whole from any damages or injuries that occur in the common, shared areas of the community like the pool or clubhouse. These master policies have coverage limits just as any standard home insurance policy does. If there is damage or injury in the common area that results in repairs, medical expenses, or legal expenses in excess of the coverage limits stated in the policy, the excess costs get assessed to each individual condo or homeowner. This is where loss assessment coverage comes in.
If a condo owner in the community doesn’t have loss assessment coverage, whatever amount gets assessed to them for excess damages will have to come out of the homeowner’s pocket. Depending on the extent of damages, this can become extremely costly for each individual condo owner. Adding on loss assessment coverage to your condo insurance policy will save you from the expensive bill because the insurance company will now pay for the amount assessed to you up to the loss assessment coverage limit that you have. This relatively inexpensive policy add-on can be extremely helpful to a condo owner.
How does loss assessment coverage work?
Let’s look at an example of how loss assessment coverage works. Let’s say that the HOA master policy provides $300,000 of protection to the common areas of the community. One day an accidental fire occurs in the clubhouse of the community causing $250,000 worth of damage. In this case, the master policy would be able to cover the entire extent of the damage.
Let’s say that the damage caused was actually $350,000. Now, the master policy will be able to cover the first $300,000 of damage with $50,000 of damage left over to be distributed evenly among all the members of the community. In this example let’s say the community is made up of 20 different condo units. This means that each member would be assessed to pay $2,500 to repair the damage. Quite possibly a large, unexpected expense for the condo owner.
Without loss assessment coverage, the homeowner has to pay that $2,500 out of pocket, whereas if the condo owner had loss assessment coverage, the coverage would kick in at this point and pay the bill for the homeowner.
What is covered under loss assessment coverage?
There are three key expenses covered by loss assessment coverage:
- Damage to common areas: if damage happens to a clubhouse, pool, the building itself, or any other common area and the repairs are in excess of the HOA master policy limit, loss assessment coverage protects the individual condo owner for any expenses assessed to them.
- Liability assessments: If the HOA is held responsible for a guest’s injury in a common area of the community, the master policy will provide protection up to the coverage limit and the excess that is assessed to the individual condo owner will be covered under loss assessment coverage
- Master policy deductible assessments: Master policies, like many standard home insurance policies has a deductible that must be paid in order for the insurance company to cover the remainder of the expenses up to the coverage limit stated. Some HOA’s may assess this deductible to each member of the community. If that is the case, loss assessment coverage can take care of that.
Talk with your HOA Association president and read through your HOA agreement to understand what is covered under the master policy, to what extent it is covered, and what you as an individual homeowner are responsible for.
How much loss assessment coverage is needed?
Most standard condo insurance policies provide a small amount of loss assessment coverage, typically maxing out at $1,000 of coverage. This amount also typically only covers damages and not lability assessments. Each condo complex or community is different, which makes the need different for everyone. If the community is large you may not need as much coverage, because the assessments will be spread out across more people. If the common areas are large and valuable, more coverage may be needed. It depends on each situation.
It is usually recommended to get as much loss assessment coverage as you can though. Liability assessments can become astronomically expensive very quickly.
How much does loss assessment coverage cost?
Loss assessment coverage is very inexpensive. Typically the additional cost per year to the condo owner is around $25 to $50, only a couple of dollars per month. This would provide the homeowner with coverage from $10,000 to $100,000.
Summary
Loss assessment coverage, while not included to a great extent in a standard condo insurance policy, is an important and inexpensive additional coverage condo owners who are part of an HOA should consider. Loss assessments can become prohibitively expensive to a homeowner, but loss assessment coverage can mitigate the cost to the individual.
