Loss assessment coverage

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Homes, townhomes and condominiums may all be part of a condo or homeowners association. These associations collect dues from homeowners or condo owners in exchange for amenities and services provided to the building and community. These services and amenities could include maintenance of common areas, swimming pools or tennis courts, as well as security measures and other benefits the collective pool of money can provide.

If shared space in an HOA is damaged or a guest gets hurt in a common area of the property, individual members could be liable to pay for damages under the HOA bylaws. Loss assessment coverage helps to cover those damages so members do not have to pay out of their own pockets.

What is loss assessment coverage?

Loss assessment coverage is an optional coverage most homeowners and condo owners can purchase as part of their home insurance policy. Although loss assessment is often associated with condo associations, any home or townhome located within a homeowners association may benefit from loss assessment coverage.

When you live in a neighborhood that is part of a condo or homeowners association, the HOA takes out an insurance policy, sometimes referred to as a master policy, to provide coverage for losses to the shared areas and building. For homeowners, the HOA may only insure the shared areas, while the master policies for condos and some townhomes will also have coverage for the building.

Even though HOAs have a separate insurance policy, there are instances where members may be required to pay some of the expenses that are not covered under the HOA’s master policy. Loss assessment coverage protects members from paying those expenses themselves.

What is covered under loss assessment coverage?

Although the details of a loss assessment coverage will differ from provider to provider, most include protection from three kinds of loss.

Damage assessments

When a public space in an HOA is damaged by a covered peril, the HOA’s master policy will cover the damages. If the cost of repair exceeds the limit of coverage in the master policy, however, the HOA may assess members and require them to pay the difference. If the damages to an HOA’s building or common area cost more than what the master policy will pay for, loss assessment coverage in an individual condo or homeowners insurance policy could cover the cost assessed to members.

Usually, HOAs will divide the remaining cost evenly between HOA members, but not all HOA bylaws or master policies are the same. Read the details carefully when joining the association so you know what to expect if this situation ever happens to you. If the policy is unclear, ask your association to clarify any areas that are confusing. You may also be able to ask for a copy of the master policy so that you can show it to an insurance agent for assistance.

Liability assessments

When someone is injured in a public area of an HOA, they might choose to sue the HOA for damages. The HOA master policy typically has coverage for these instances. Once again, though, the cost of the settlement could be more than the limit of coverage in the master policy.

If liability damages that the HOA is held legally responsible for exceed the limits of insurance, members may be assessed for the remaining cost. The loss assessment coverage on your homeowners or condo owners insurance policy could protect you from having to pay these costs out of pocket.

Deductible assessments

When an HOA signs up for a master policy, the HOA will usually choose a deductible amount for each coverage. A deductible is how much the policyholder, which would be the HOA in this case, will have to pay out-of-pocket when a claim is filed.

If the HOA’s building or common area is damaged and the HOA has a high deductible, the cost of repair may be less than the deductible. In this case, the master policy will not cover the damages and the HOA might assess members to pay for the costs of repair. The HOA may also place a deductible assessment on owners for having to pay the deductible, even if the claim is fully covered by the master policy limits. Loss assessment coverage can help to protect members from deductible assessments by paying the member’s share of the cost up to the limit of the coverage.

Do I need loss assessment coverage?

Loss assessment coverage is something to strongly consider if you own a condo or if you buy a home or townhome in an HOA community. People who choose to join HOAs can be liable for damages that are no fault of their own, and buying loss assessment coverage can protect HOA members from taking a financial hit when an assessment occurs. Home insurance companies typically offer different limits of coverage for loss assessment, ranging from $1,000 up to $100,000 or more.

When deciding how much loss assessment coverage to buy, look at the HOA’s master policy to see how they handle assessments and specifically how those assessments will affect members.
If an HOA needs to assess members for a loss resulting from insurance, the HOA will usually divide the cost evenly between members. If the HOA has many members, the loss assessment per owner would be less compared to an HOA with fewer members

Consider this scenario when determining if loss assessment coverage is right for you and how much to purchase. If a storm causes $500,000 in damage to the amenities in a shared area and an HOA master policy only has $400,000 in coverage, there is an excess of $100,000 that would likely be assessed to the homeowners. If the policy has a high deductible of $25,000, the association may also assess the cost among the owners in the community. Loss assessment coverage could help you to cover the cost of your share of the assessment.

How to buy loss assessment coverage

Loss assessment coverage is offered by most home insurance providers. When signing up for a condo, townhome or homeowners insurance policy, loss assessment will typically be offered by the provider as an optional coverage that can be purchased for an additional cost.

When deciding how much coverage to choose, consider the number of people living in the HOA and what kind of common areas are provided by the HOA, like swimming pools, playgrounds and other places people may get injured or could be costly to repair. These factors could increase the chances of an assessment and increase the value of that assessment.

Frequently asked questions

How much loss assessment coverage do I need?

If an HOA needs repairs that far exceed the master policy’s coverage limits, members could have to pay a lot of money. Being assessed for guest injuries or other damages are also reasons to purchase loss assessment coverage. Take these factors into consideration when purchasing loss assessment coverage, which is generally affordable even at higher limits.

What are loss-based assessments?

When a HOA is found to be liable for a loss covered under the master policy, that policy will pay up to the limit of coverage. If the loss exceeds the limit of coverage or if the master policy has a high deductible, the excess loss and deductible cost passed to members is a loss-based assessment.

If a guest slips in the pool and sues the HOA, am I liable for damages?

If the guest wins the lawsuit and the HOA has to pay damages that exceed the limits of coverage in the master policy, the HOA could assess members for the remaining cost.