UPDATED: AUGUST 11, 2023 | 2 MIN READ
If you live within a condo community, you likely know about homeowner associations (HOA) and how the insurance process works when it covers your community’s shared spaces. As a member of an HOA, you should purchase loss assessment coverage to save money if the HOA files an insurance claim. Let’s go over why you need loss assessment coverage and what it covers.
Loss assessment coverage
Loss assessment coverage is an insurance rider for properties with an HOA, such as a condo or home within a community. Homeowners and condo owners can add the rider to their existing home insurance policy in case of community area damage or an injury claim.
Your HOA fees go towards the community’s master insurance policy, but like home insurance, a master policy also has coverage limits. The loss assessment rider protects you against paying additional costs if the HOA asks owners to contribute after a special assessment.
For example, Miami condo owners in 2023 saw a demand that each owner pays $175,000 towards recertification fees and repairs because the building needed to be recertified by a professional engineer, and the costs weren’t covered by the HOA. In this case, you would file a claim through your loss assessment coverage.
Who needs loss assessment coverage?
Anyone who lives with an HOA should purchase loss assessment coverage. It’s a worthwhile investment as it may save you thousands. If you live in an older building or in an area with a high risk of hurricanes and tornadoes, you should invest in the coverage.
You should also add a loss assessment endorsement if you have several common areas in your community because at least one may need repair or replacement in the future. Loss assessment coverage
What does it cover?
Loss assessment covers liability for injuries within the building or property common areas and damage to the building. A standard homeowners insurance policy covers issues of an insurance claim, such as fire, wind, and other covered perils.
What doesn’t it cover?
Loss assessment doesn’t cover anything for your personal property or condo. It also doesn’t apply to changes made to the building by the HOA for superficial reasons, such as painting.
How does loss assessment coverage work with a homeowners insurance policy?
The loss assessment coverage endorsement is optional for your homeowners insurance policy for your home in an HOA-run community. Your homeowner’s insurance policy covers your home, but the loss assessment is for the shared spaces outside your property.
Suppose your HOA issues a special assessment for repairs or replacement for a shared space, such as a community pool or parking lot. In that case, they will likely exceed their master policy’s coverage limits. If that’s the case, the HOA will require members to each pay a portion of the costs.
You can then file an insurance claim with your home insurance company if you have loss assessment coverage, and that covers some or all of the costs of your portion of the expenses levied.
How does loss assessment coverage work with a condo insurance company?
The loss assessment coverage works with a condo insurance company, similar to how it does with a home insurance company. Again, the special assessment will apply to common and shared spaces in the condo community.
Depending on the size of your condo building, these spaces could include a fitness room, theatre, pool, stairwells, elevators, and laundry rooms.
Do you have to pay a deductible when you file a loss assessment claim?
You may have to pay a deductible when you file your insurance claim. The deductible for a loss assessment claim depends on your insurance company. Some companies may require a deductible, but your deductible amount will be lower than the amount if you paid entirely out of pocket.
How much coverage do you need?
Loss assessment coverage ranges from $10,000 to $100,000. You should choose your coverage based on the master policy’s coverage limits and possible repairs needed in the future.
You should look at the shared spaces of your community, such as pools, elevators, community rooms, etc., that could need repair, then calculate their potential costs. Your HOA bylaws may also specifically outline the coverage limits for your community.
What’s an example of a loss assessment?
If a condo pool is cracked beyond repair and needs $350,000 in replacement costs, you could face a loss assessment if your HOA’s coverage is only $300,000.
Condo owners will need to pay for the remaining $50,000, and the HOA will do a loss assessment, letting unit owners know they must pay a portion of the costs. If there are 20 units in your condo building, and you have $5,000 in loss assessment coverage, it would likely cover your portion, or $2,500.
Is loss assessment coverage worth it?
Yes. Loss assessment coverage is worth it. It can save you hundreds or even thousands in out-of-pocket expenses after damage.
What’s a loss assessment deductible umbrella?
A loss assessment deductible umbrella is for coverage associated with the assessment. It covers what the loss assessment coverage won’t.
Does an umbrella policy cover loss assessment?
No. An umbrella policy doesn’t cover loss assessment. It’s liability insurance and only covers claims against an owner.