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What Is Loss Assessment Coverage?

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Loss assessment coverage is a cheap add-on to a condo insurance policy that helps to cover the remaining costs associated with special assessments, which are issued when a damaging incident occurs in the condo complex’s common area and the condo association’s master insurance policy doesn’t cover the full amount.

When claims occur in the common area of a condo complex, the complex’s HOA has its own insurance policy that’s used if there’s been a claim involving common areas or the actual building. If any claim exceeds the HOA policy’s coverage limit, the remaining amount is divided amongst the residents to be paid in what’s known as an HOA special assessment.

Loss assessment coverage protects condominium owners from having to pay out of pocket for special assessment claims that exceed the coverage of their homeowners association’s master insurance policy limits.

Does Condo Insurance Cover Special Assessments?

Unfortunately, no, a run-of-the-mill condo insurance policy doesn’t cover special assessments issued by your HOA. That’s why condo owners need to add loss assessment coverage to their HO6 condo policy immediately and ensure they have enough coverage to protect themselves in the event of damage or destruction. It’s the affordable add-on to condo policies that helps protect you against special assessments, like the most common claims below.

What Is a Condo Association Special Assessment?

If your condo association is hit with an unexpected expense that isn’t fully covered by the HOA’s master policy, the remaining amount gets distributed to the complex’s residents to be paid in full in the form of a special assessment. If you don’t have loss assessment coverage included in your condo insurance policy, you could be stuck paying thousands of dollars out of your pocket to help pay for the repairs.

So if your condo association gets hit with a tragic or extremely damaging incident, such as a powerful storm ripping off a roof or an accident occurring in the pool, you could be stuck paying out of pocket to cover the cost of an HOA special assessment — even if it had nothing to do with you.

Unless you have loss assessment coverage, which is a common part of a condo owner’s HO6 insurance policy. That’s why every condo owner should add loss assessment coverage to their condo insurance policy. Let’s take a look at some examples of the most common forms of special assessment scenarios handed down by condo complexes.

1. Damage to Exterior Property

If a natural disaster damages the exterior portion of your condo complex, including the roof or windows, your condo complex’s master policy would pay for the damages since you don’t own the building in which you live.

If those damages are significant enough to where they exceed the maximum limit on the HOA’s master policy, the complex would issue a loss assessment to cover the remaining costs to repair or rebuild the building.

If you have loss assessment coverage, all you’d need to pay is your deductible, and your coverage would pay the amount assessed to you up to your policy’s maximum. If you didn’t have loss assessment coverage, you’d be stuck paying out of pocket for the special assessment.

2. Damage to Shared Property

Similar to exterior property that binds everyone’s condos together, damage or destruction to a shared property may also be subject to an HOA special assessment. If a fire engulfs the hallway carpet in flames and spreads to the elevator, staircase and balcony railing, repairs could quickly max out the HOA’s limits. 

In that case, loss assessment coverage would pay the amount responsible to owners that exceed the limit. Again, no loss assessment coverage would mean you’d be stuck paying out of pocket for the special assessment.

3. Injuries Occurring in Common Area

You could be held responsible to pay medical expenses and legal bills if there’s an injury in a common area of your condo complex that exceeds the HOA’s master policy limits — whether you knew the person or not. Since it’s in the common area, the liability coverage or medical payments to others portions of your condo policy wouldn’t go into effect.

In that case, loss assessment coverage could step in and save the day. Injuries could include a skateboarding accident in the parking lot, slip and fall at the pool, accident in the community gym or similar injury.

What Is Special Assessment Insurance?

Special assessment insurance is just another name for loss assessment coverage, which protects you against special assessments issued by your homeowners association when its master insurance policy doesn’t cover the full amount of a claim.

With special assessment insurance, your part of the HOA fee may be paid by your insurance company instead of by you. The most common special assessment claims are typically related to property damage and liability claims that occur in the common areas (collectively owned) of a condominium complex.

What’s the Maximum HOA Special Assessment Limit?

Unfortunately, there’s no limit as to how much a special assessment could cost residents of a condo complex. However, since condo complexes are required to maintain a master insurance policy of their own — which is typically a minimum of $1 million — many special assessments shouldn’t exceed $30,000 per resident. That’s still a boatload of money you’d have to pay out of pocket if you didn’t have loss assessment coverage. Let’s look at some examples.

For instance, if a windstorm like a hurricane or tornado rips off the roof and siding of your condo and creates $1.3 million in damage, the HOA master policy will kick in and pay any amount up to its coverage limits. If the condo association’s policy only has $1 million in coverage, the remaining $300,000 is now the responsibility of the residents.

If the condo complex houses 15 units, the $300,000 HOA special assessment is divided among the 15 residents to be paid. That leaves each resident with an unexpected $20,000 bill ($300,000 / 15 = $20,000) that must be paid to remain in good standing with the homeowners association.

You can either pay the $20,000 out of your pocket or, if you have loss assessment coverage under your condo insurance HO6 policy, your insurance company will write the check for you. You still must pay the loss assessment deductible associated with your policy, which is commonly from $500 to $1,000.

If you’re a property owner who owns a unit in a shared community, you may be subject to an HOA special assessment at any time. Purchasing loss assessment coverage before you’re issued a special assessment is extremely important.

When it comes to deciding how much loss assessment coverage you should get with your condo insurance policy, It’s also important to look through your homeowners association master policy to find out the coverage limits.

If your potential new complex houses 50 units and its HOA policy only covers up to $500,000, it would be wise to keep searching or get loss assessment coverage added to your condo insurance. Using that information, you may want to get as much coverage as you can afford, just in case something goes wrong.

How to Get Loss Assessment Coverage

The average cost of an HO6 condo insurance policy is about $500 per month across the United States. However, premium prices fluctuate depending on the state and area you live in and how much coverage you need to protect your condo. The cost of loss assessment coverage is minuscule in comparison, setting the average condo owner back just $10 to $25 per year.

Life happens, and you never know when you’ll need to file an insurance claim, especially when it comes to your condo association’s master HOA policy. You won’t know how much an HOA special assessment is until you receive the bill, so get your free condo insurance quote today.

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The editorial content on Clovered’s website is meant to be informational material and should not be considered legal advice.