Condos, townhomes, and condominiums can all be part of a homeowners or condo association. In exchange for the amenities and services offered to the community and building, these associations charge homeowners and condo owners dues. These amenities and services could include maintenance of common areas such as swimming pools and tennis courts as well as security measures or other benefits that the collective money can provide.
Individual members may be held responsible for any damage to shared property or injuries sustained by guests in the common areas of an HOA. Members don’t have to pay for these damages because they are covered by the loss assessment coverage.
What is loss assessment coverage?
Condo owners and homeowners can add loss assessment coverage to their home insurance policies. Loss assessment coverage may be available for any property or townhome that is part of a homeowners association, even though it is usually associated with condo associations.
If you live in a condominium or homeowners association neighborhood, an insurance policy is taken out by the HOA to cover losses to the common areas and buildings. The HOA will only cover the common areas for homeowners. However, master policies for condos, townhomes, and other buildings will provide coverage.
HOAs may have their own insurance policy. However, members might be required to cover some expenses not covered by the HOA’s main policy. Members are protected from having to pay these expenses by loss assessment coverage.
What are the benefits of loss assessment coverage?
While the details of each provider’s loss assessment coverage may differ, most offer protection against three types of loss.
Assessment of damage
The master policy of an HOA will cover damage to public spaces if the peril is covered. The HOA can assess members to determine if the repair costs exceed the limits of the master policy. If this happens, however, the HOA could require them pay the difference. Loss assessment coverage could be provided in individual homeowners or condo policies to cover members for the costs incurred by an HOA.
HOAs usually split the cost equally between members. However, not all HOA master policies or bylaws are the same. Make sure you read the entire agreement before you join the association to ensure you understand what to do if you find yourself in this situation. Ask your association for clarification if the policy is unclear. A copy of the master policy may be available to you to show an agent.
Assessments of liability
A person might sue an HOA for damages if they are injured in a public place of the HOA. These cases are usually covered by the HOA master insurance. However, settlement costs could exceed the coverage limit in the master policy.
Members may be charged for any liability damages the HOA is found legally responsible for that exceed the insurance limits. These costs could be covered by your condo owners or homeowners insurance policy.
Assessments with a deductible
A master policy is a policy that covers all coverages. The deductible is the amount the policyholder (which would be the HOA) will have to pay out of pocket when a claim is filed.
The cost of repair might be lower if the HOA’s common areas or building is damaged. The master policy may not cover damages in this instance and the HOA could assess members to pay the repair costs. Owners may be assessed a deductible by the HOA for not paying the deductible even though the master policy covers the claim. Members can be protected from deductible assessments through loss assessment coverage. The coverage pays the member’s portion of the cost up until the limit.
What loss assessment coverage do I need?
If you are buying a condo, or a townhome or home in an HOA community, loss assessment coverage is something you should seriously consider. HOA members can be held responsible for any damages caused by their actions. Purchasing loss assessment coverage can help prevent HOA members taking financial losses if an assessment is made. Insurance companies offer a variety of loss assessment coverage, from $1,000 to $100,000.
To determine how much loss assessment coverage you should buy, review the master policy of your HOA to learn how they handle assessments and how these assessments will impact members.
HOAs will often divide the cost equally between members if they have to assess their members for loss due to insurance. The loss assessment per owner for an HOA that has many members will be lower than one with fewer members.
This scenario is a good example to use when deciding if loss assessment coverage is right. A storm that causes $500,000 damage to amenities in a community would result in an HOA master policy with $400,000 coverage. The homeowners would be responsible for the $100,000 excess. The association could also assess the homeowners’ costs if the policy has a $25,000 deductible. You may be eligible for loss assessment coverage to help cover your share of the assessment.
How do I buy loss assessment coverage
Most home insurance providers offer loss assessment coverage. Loss assessment coverage is typically an option that can be added to homeowners, condo or townhome insurance policies.
Consider the number of residents in the HOA as well as the type of common areas provided by the HOA. These include swimming pools, playgrounds, and other places where people could get hurt or need to be repaired. These factors can increase the likelihood of an assessment, and could also increase the assessment’s value.
Questions frequently asked
What amount of loss assessment coverage do you need?
Members could be required to spend a lot of money if repairs are needed by an HOA that go beyond the limits of their master policy. Loss assessment coverage can also be purchased for guests’ injuries and other damages. These factors should be taken into account when you purchase loss assessment coverage. It is usually affordable even for higher limits.
What is loss-based assessment?
If a HOA is found liable for a covered loss under the master policy it will be paid up to the maximum coverage. A loss-based assessment is made if the loss exceeds the coverage limit or the deductible cost of the master policy.
Can I be held liable if a guest slips into the pool and sues HOA?
If the guest wins the case and the HOA is required to pay damages beyond the limits of the master policy, then the HOA can assess the cost to members.
