What is loss assessment coverage?
Loss assessment coverage, sometimes called special assessment insurance, is often included in condo insurance. It provides protection for condo owners when they are held financially responsible for shared property’s repair costs or damages.
Let’s unpack that a bit.
Say you own a condo in a highrise building and belong to a condo association. There’s a fire in your courtyard, which is property you share with all condo owners in this building. Your HOA / condo association’s master insurance policy covers damage to shared spaces like this, but the repair costs exceed the policy’s coverage. Your association can require all its condo owners to chip in to help cover the excess costs.
When you’re required to contribute funds to a shared loss, that’s a loss assessment. Loss assessment coverage is what helps you pay for your share of the unexpected expense.
How does a loss assessment work?
A loss assessment may apply when:
- The condo building is damaged
- There’s an injury in a shared area
- Shared property (like fences, hallways, or courtyards) is damaged
But why do these losses become a shared responsibility for condo owners? It’s usually one of the following reasons:
- Your HOA’s master insurance policy has a high deductible
- Your HOA didn’t insure the building properly
- Your HOA’s master policy doesn’t cover the loss
- The loss exceeds your HOA’s coverage
After the value of the damage is determined, the cost is divided among all individual condo unit owners. Owners who have loss assessment coverage can make a claim on their policy to cover their owed portion.
Your insurance company will treat individual assessments as one single assessment if they originated from the same peril. So if a fire destroys your building’s courtyard, lobby, and hallways, and your condo association issues three different assessments, don’t be surprised if your insurer groups them together to streamline the claim.
Worth noting: All loss assessments are special assessments, but not all special assessments are loss assessments. In other words, your HOA might issue a special assessment to cover maintenance, upkeep, or renovations that exceed the association’s reserve funds. Because these aren’t insured losses, they aren’t loss assessments and aren’t covered by your insurance.
|Loss assessment insurance covers
||Loss assessment insurance doesn't cover
|Common property damage assessments
||General wear & tear
||Earthquakes, mudflow, and sinkholes
|Master policy deductible assessments
||Water damage from floods, sewer backup,
or water seeping through the foundation
||Seizure or demolition of the building
What loss assessment insurance covers
Loss assessment coverage offers three main types of protection. It covers:
- Damage to common property
- Liability in common areas
- Deductible assessments
Let’s look at each in more detail.
Common property damage assessments
If your condo association’s master coverage isn’t enough to pay for damage to shared property, the excess is usually assessed. That applies for damage to:
- The building itself
- Tennis courts
- And more
Loss assessment coverage only kicks in when the assessed property damage was caused by an event your condo insurance’s dwelling coverage covers. That means it can cover an assessment for damage caused by fire, hurricane winds, theft, vandalism, and more. It can’t cover an assessment for damage caused by earthquakes, flood damage (unless you add on flood insurance), or any other peril your policy excludes.
So say your condo association’s gym was destroyed by hurricane winds. In total, it exceeds the condo association’s coverage by $10,000. Your loss assessment coverage can help pay for your portion of that assessment.
Similar to property damage, your condo association’s master policy also covers injuries that happen in common areas. But if your HOA is held liable for a guest’s injury that exceeds the master policy’s coverage limits, you can be assessed the excess.
So say, for example, someone slips and falls by your condo’s pool, and the victim sues the HOA for $1.25 million in medical expenses. Your HOA’s master policy caps out at $1 million in liability coverage. The remaining $250,000 would be divided among you and your fellow condo unit owners.
Your loss assessment coverage can help pay for your share of the personal liability assessment.
Master policy deductible assessments
Some condo associations have a master policy with a high deductible, and those can also be assessed. For example, if the master policy has a $20,000 deductible, and common areas incur $100,000 in damage, their insurance can cover $80,000. Your condo association is still on the hook for the $20,000 deductible and can pass that on to unit owners.
Another way deductibles can play into loss assessments: if the master policy deductible is too high, smaller damages will need to be covered through assessment, too. For example, say there’s that pesky fire in the courtyard again, and it causes $10,000 worth of damage. If the master insurance policy’s deductible is $20,000, insurance won’t cover this loss, and it will likely be assessed instead.
For both scenarios, loss assessment coverage can usually help cover master deductible assessments.
It’s important to read your HOA’s bylaws and get familiar with master policy deductibles. Assessments can add up quickly, and you want to make sure you have enough coverage.
What loss assessments insurance doesn’t cover
Loss assessment insurance only applies to damage your individual condo insurance policy covers. That means it won’t cover damage caused by:
- Earth movement, such as an earthquake, sinkhole, and mudflow
- Water damage from floods (unless you have flood insurance) sewer backup, or water seeping in through the foundation
- Seizure or demolition by a government agency or public authority
- General wear and tear
Pay attention to that last point because you can face special assessments for general maintenance, and loss assessment coverage won’t cover it.
How to add more loss assessment coverage to your policy
Some amount of loss assessment coverage is already included in condo insurance. The standard amount varies from provider to provider. For reference, Kin’s HO6 policies come with $2,000 of loss assessment coverage included.
Given the many circumstances that may call for loss assessments, though, it’s smart to increase this coverage and easy to do so.
With Kin, you can add an endorsement to increase your loss assessment coverage limits. We require limits of at least $2,000, and the coverage has a $250 deductible.
When you apply for condo insurance with Kin, we’ll take a look at your condo association’s bylaws to see what types of assessments you may be responsible for and how many units belong to your HOA. That way we can help you decide how much coverage is right for you.