Loss assessment coverage protects condo owners from unexpected expenses that result from damages to the building or common areas of their homeowners association (HOA).
If shared space in an HOA is damaged, individual members could be liable to pay for damages under the HOA bylaws. Loss assessment helps to cover those damages so members don’t have to pay out of their own pockets.
What is loss assessment coverage?
Loss assessment coverage is a kind of coverage available in HO-6 homeowners insurance policies—commonly known as condo insurance.
A typical condo insurance policy will protect the interior of the owner’s dwelling, while the exterior building and common areas are covered under the HOA’s insurance policy called a master policy.
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.
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 will 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 insurance policy will 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 when joining the association so you know what to expect if this situation ever happens to you.
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 will be assessed for the remaining cost. Liability assessment coverage will protect policyholders from having to pay these costs themselves.
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, the HOA in this case, will have to pay out-of-pocket before the policy pays anything.
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. Loss assessment coverage will 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 essential for anyone who owns a condo. People who choose to join HOAs can be liable for damages that are no fault of their own, and buying loss assessment coverage will cover HOA members from taking a financial hit when an assessment occurs.
Home insurance companies offer different limits of coverage with loss assessment, and some companies allow policyholders to choose the limits of the coverage. Higher coverage limits will also mean the policy’s premium will be more expensive.
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 cost might not be too bad. If the HOA is smaller with fewer members, it’s a good idea to buy as much loss assessment coverage as possible.
It’s also a good idea to read the HOA’s master policy and check the coverage limits included in the policy. If the deductible is high or the coverage limit is low, members might need more loss assessment coverage than they would otherwise.
How to buy loss assessment coverage
Loss assessment coverage is offered by home insurance providers. When signing up for a HO-6 condo insurance policy, loss assessment will typically be offered by the provider as an optional coverage that can be purchased for an additional cost.
Purchasing loss assessment coverage with a higher limit is usually not too much more expensive than buying the same coverage with a lower limit, so we suggest purchasing the highest limit of coverage available.
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. Buy as much assessment coverage as possible for the greatest peace of mind.
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 to the limit of coverage. If the loss exceeds the limit of coverage, the excess loss passed to members is a loss based assessment.
Does loss assessment coverage pay for damages from perils excluded from the master policy?
If the HOA is found to be legally liable for a loss that falls outside of the coverages included in the master policy, the master policy will not cover the loss. Because the master policy does not cover the loss, individual loss assessment coverage will not cover the loss either.
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.