If you live in a shared community that has a condo or homeowners association (HOA), damage to shared spaces like the building, clubhouse, or pool area is covered by your HOA’s master policy, which is paid for by membership dues. That means if a shared space is damaged or a guest has an accident in a common area, your community’s HOA insurance will cover the loss up to its coverage limits.
If the claim amount exceeds those limits, HOA bylaws usually require members to pay an equal share of the leftover loss amount. A loss assessment coverage endorsement is designed to cover these leftover costs so that you don’t have to foot the bill entirely out of your own pocket. You can easily add this endorsement to your condo or homeowners insurance policy.
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How does loss assessment coverage work?
Loss assessment coverage is a policy endorsement that you can add to your home or condo insurance policy. It kicks in for covered property damage or liability incidents in common areas that exceed the HOA master policy coverage limits.
Here’s an example.
Say the HOA 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.
Loss assessment coverage kicks in when the loss exceeds the HOA policy limits. The remaining costs are “assessed,” which means they’re divided and split amongst the members.
Let’s use the same example.
Say the storm actually caused $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, which your loss assessment coverage would then pay for.
What is covered by loss assessment coverage?
Loss assessment coverage protects you in three distinct ways.
1. Damage to common areas
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.
If your HOA issues multiple assessments for the same peril, you'll only have to file one claim with your insurer
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. This means that you only have to file one claim with your insurance company, not three separate ones. This is a good thing, because filing multiple claims in one year would likely result in a rate increase when you go to renew your policy.
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2. Liability assessments
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 common area. Similar to property coverage, your HOA usually only assesses liability losses when the master policy coverage has reached its limit.
Let’s take a look at an example. Say someone is badly injured in the HOA community pool and the victim’s family sues for $1.5 million. And let’s say the HOA master policy limit is $1 million. That means $500,000 would be assessed to association members. If your HOA has 20 members, $25,000 would be assessed to each unit.
When you consider how expensive liability claims can be, it might make sense to add on as much loss assessment coverage as your insurer allows.
3. Master policy deductible assessments
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. If your HOA passes on the master policy deductible to members to pay, then loss assessment coverage can also help pay for your portion of the deductible. Master policy deductible assessments are particularly common in HOAs that opt for higher deductibles. When and how this works will vary by HOA, so review your policy to see when you might be responsible for a deductible payment.
You can call and speak with a licensed representative at Policygenius, who can walk you through your HOA agreement and make sure you have enough loss assessment coverage for your specific HOA.
How much does loss assessment coverage cost?
A loss assessment coverage endorsement typically costs an extra $25 to $50 a year, which is a small amount to pay to ensure a loss doesn’t leave you financially strapped.
Loss assessment coverage limits can range anywhere from $10,000 to as much as $100,000.
How much loss assessment coverage do you need?
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 it doesn’t include coverage for liability assessments.
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, workout facilities, or grill areas within your gated community or condo complex? If so, you’ll want to consider getting a higher loss assessment coverage limit.
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 cost is going to be spread out over a larger group of people.
Still, most experts recommend opting for as high of loss assessment coverage limits as your insurance company offers, since liability claims alone can result in assessments in the millions.
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