What is loss assessment coverage?
Loss assessment coverage is an optional endorsement you can add to your condo or homeowners policy for an additional premium. If your condo association or homeowners association (HOA) has to issue a special assessment fee to owners — due to an insurance claim — loss assessment coverage may help cover the cost. Some policies may already have a limited amount of loss assessment included in the policy, but the endorsement would increase that limit.
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What is a loss assessment?
A loss assessment is your share of a fee that may be charged against you for loss to property owned in common by the members of your condo or homeowners association. If your association doesn't have sufficient insurance to cover all the damage, or if the association's policy has a deductible that's higher than the cost of the damage, then you could be charged an assessment fee. Loss assessment coverage may help cover this type of fee in the event of a covered loss.
Example:A fire damages the hallway and elevator in your building, causing $330,000 worth of damage. Your condo association has $300,000 in coverage for the building's structure. The association's insurance may pay up to the $300,000 coverage limit, leaving $30,000 worth of unpaid damages. The association divides the remaining $30,000 among the 30 residents in the building, which means you owe $1,000 in the form of a loss assessment. Fortunately, you purchased loss assessment coverage and have $10,000 in loss assessment coverage on your condo insurance, so your insurance company may cover the $1,000 you owe.
Does condo insurance cover assessments?
A standard condo insurance policy usually provides up to a certain limit — for example, $1,000 — in loss assessment coverage, though this may only cover a fraction of an assessment fee. If you need a higher amount of coverage, you'll need to purchase additional loss assessment coverage for your condo policy. The additional amount of coverage you can buy can range from $10,000 to $100,000, depending on the insurer.
Pro tip:
A special assessment can be a small expense or can easily cost thousands of dollars. With additional loss assessment coverage, you may potentially avoid large out-of-pocket expenses.
How does loss assessment coverage work?
If your condo association charges you a special assessment fee, your loss assessment coverage may cover the fee up to your policy's limit. Contact your agent to determine if your loss assessment coverage will apply.
Here are a few examples of assessments and how loss assessment coverage can help:
- Damage to the building: Say a fire causes $750,000 in damage to the building. If your condo association's master policy is capped at $600,000, then the remaining $150,000 must be covered by the condo unit-owners in the building. Assuming there are 25 units in the building, each condo unit-owner will be responsible for $6,000. In this case, loss assessment coverage may cover all or part of the $6,000 you owe, depending on your coverage limit.
- Injury in the building: Common areas of the building, such as stairwells, pools, tennis courts, and clubhouses, are usually covered by the association's master policy. If someone is seriously injured in a common area, and the condo association is responsible, the costs may exceed the coverage limits of the master policy. If the association charges the difference to the condo owners as a special assessment fee, your loss assessment coverage may pay for some or all of it.
- Association deductible: Condo master policies typically come with a large deductible that can range up to $25,000 or higher. In some cases, when there's a claim, the association will issue a special assessment to the condo unit-owners to cover the deductible. Loss assessment coverage may help cover this type of assessment.
How much does loss assessment coverage cost?
A loss assessment coverage endorsement typically has a low annual cost, but the cost will vary by insurer and the amount of coverage you purchase.
How much loss assessment coverage is enough?
If your condo association or HOA maintains a number of common areas or amenities, then you may want to consider choosing a higher limit for your loss assessment coverage. You may also want to take into consideration buying more coverage if there aren't that many people in your building or neighborhood, since there would be fewer people sharing the cost of a special assessment. If you're not sure how much coverage you need, check with your insurance representative or agent.
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