More on Home Insurance
More on Home Insurance
If you live in a home or condo that belongs to an HOA, you'll need loss assessment coverage to cover shared losses to common spaces on the HOA property.
If your condominium or home is part of a condo or homeowners association (HOA), you and other members pay dues for certain services and amenities for your building or community. Your dues go toward everything from security and surveillance to HOA insurance to maintaining and improving shared spaces like swimming pools, tennis courts, and clubhouses.
If a shared space within the HOA sustains damage, or if a guest has an accident in a common area and the association is held liable in court, your building or community’s HOA insurance, or “master” policy will cover the loss up to its coverage limits. If the claim amount exceeds those limits, HOA bylaws usually stipulate that each member be assessed and pay an equal share of the leftover loss amount.
Your home or condo insurance will cover some assessed losses up to $1,000, but for additional coverage, you’ll need to add a loss assessment coverage endorsement to your home or condo policy.
If you live in an HOA, you'll need a loss assessment coverage endorsement for your home or condo insurance
Loss assessment coverage protects you against losses to commoon areas assessed to you by your HOA
The amount of coverage you need depends on your HOA's bylaws — some HOAs assess damages more frequently than others
Any property damage or liability incidents related to common areas are covered by the HOA’s master policy. That means if the master policy has $500,000 in property coverage and a storm causes $300,000 in damage to your condo building, the HOA’s insurance will be more than enough to cover the loss.
However, depending on your HOA’s bylaws, they may require any loss amount exceeding the HOA policy limits be assessed, or divided among members. In that case, if the storm causes $600,000 in damage, the HOA policy would cover the first $500,000 of the loss, but then the remaining $100,000 would be assessed to members. If you live in a 50-unit building, each unit would be assessed $2,000.
Like your personal home or condo insurance policy, your HOA’s master policy includes a deductible that the home or condo association pays before the insurance company covers the remainder of the loss. Master policy deductibles are typically anywhere from $5,000 to $25,000.
If your HOA has a high deductible, like $25,000, the HOA may assess the deductible to home or condo owners the same way they assess shared losses.
The particulars of who they assess the deductible to and in what situations they assess it will differ from HOA to HOA. For example, say you live in a condo complex with multiple buildings and only your building is damaged by fire. In that case, it may be that only unit owners in your building have to pay the deductible.
Be sure to read your HOA’s bylaws to find out if, or how, they assess master policy deductibles. You can also call and speak with a licensed representative at Policygenius, who can walk you through your HOA agreement and make sure you have a sufficient amount of loss assessment coverage for your particular HOA.
Loss assessment coverage covers you when you’re assessed for property damage, but only if the damage is also covered by the dwelling portion of your home or condo insurance. That means perils like flood damage, earthquake damage, or something simple like general wear and tear aren’t covered. (However, earthquake loss assessment coverage is available in certain states.)
Loss assessment coverage also covers liability assessments if your home or condo association is held liable for a guest’s injury and sued beyond the master policy coverage limit.
Keep in mind that even if your HOA issues multiple assessments, from an insurance standpoint, your insurer will consider it one assessment if they originated from the same peril. That means if a fire damages the structure of your condo building, the hallways, and the building lobby and you’re issued three separate assessments by your HOA at three different times, your insurance company will still consider it to be one assessment.
With loss assessment coverage, you’re protected in three distinct ways. You’re covered from:
If you’re assessed for covered damages to common areas that the HOA is responsible for, loss assessment coverage will reimburse your portion of the assessment. As we went over earlier, you’re typically only assessed for damages when the master policy coverage has reached its limit.
However, there’s another scenario here where loss assessment would be necessary. For example, say your HOA’s tennis courts are vandalized and the damage amount is something like $10,000. If the master policy deductible is $25,000, the HOA’s insurance wouldn’t be able to cover it since the damage falls below the deductible. In that case, the repair costs would be assessed to HOA members.
A loss assessment coverage endorsement can also help pay your portion of liability damages if your HOA is held legally responsible for a guest’s injury in a building or subdivision common area. Similar to property coverage, your HOA usually only assesses liability losses when the master policy coverage has reached its limit.
That means if someone is badly injured or drowns in the HOA community pool, the victim’s family sues for $1.5 million, and the master policy limit is $1 million, $500,000 would be assessed to association members. If your HOA has 20 members, $25,000 would assessed to each unit.
When you consider how expensive liability claims can be, it's important to make sure you have as much loss assessment coverage as your insurer allows.
If your HOA assesses the master policy deductible to members, loss assessment coverage will also help pay for your portion of the deductible. Master policy deductible assessments are particularly common in HOAs that opt for higher deductibles.
Technically, loss assessment coverage is already part of every standard home and condo insurance policy. But you’re generally only covered up to $1,000 and aren’t covered for liability assessments.
Most loss assessment coverage endorsements are as low as $10,000 and as high as $100,000.
How much loss assessment coverage you need is going to depend on the particulars of your HOA — are there a lot of “attractive nuisances” like pools or workout facilities or grill areas within your gated community or condo complex? If so, you’ll want to consider getting a lot of loss assessment coverage.
It also depends on how many people are in your HOA. If there are 100 homes in your HOA subdivision, you may not need as much coverage if the assessment is going to be spread out among a larger group of people.
However, you should still opt for as much loss assessment coverage as your insurance company offers. Liability claims alone can result in assessments in the millions. A loss assessment coverage endorsement typically costs an extra $25 to $50 a year, which is a small amount to make sure a loss doesn’t leave you financially strapped.
Pat Howard is a homeowners insurance editor at Policygenius in New York City. He has written extensively about home insurance cost, coverage, and companies since 2018, and his insights have been featured on Investopedia, Lifehacker, MSN, Zola, HerMoney, and Property Casualty 360.
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