Loss assessment coverage protects condo owners against damages to communal areas that exceed the master policy limits of their homeowners association. Condo owners share responsibility for a portion of the cost of repairs and maintenance to any party of their building outside their personal dwellings. Without loss assessment coverage, payment for these claims comes directly out-of-pocket.
Say a fire consumes your building, inflicting $200,000 worth of damage to the gym and swimming pool. If your condo owners association’s master policy limits its coverage to $120,000, the remaining $80,000 falls evenly between you and the rest of your neighbors. That’s where loss assessment coverage comes in. It offers community members peace of mind against these sorts of unwanted surprises.
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Home Insurance for Condo Owners: Your Policy and Theirs
All condo owners pay fees to their COA (condo owners association), an organization responsible for maintaining common areas and providing community amenities and services. Your condo insurance policy protects you from damages behind your front door, whereas a COA’s master policy covers the building itself.
Loss assessment riders bridge the gap between both plans, extending your personal coverage to include damages to common areas like gyms, stairwells, elevators, and pools and liability claims filed by injured guests.
While COA master policies exist to cushion residents from losses of this kind, these plans have limits. Repair or legal costs exceeding these limits get split between community members, making loss assessment coverage crucial for anyone with stakes in a shared environment like a condo or townhome.
How Does Loss Assessment Coverage Protect You?
Whose policy is it?
Is it mandatory?
No; it is also not part of standard condo insurance policies
What does it cover?
Damages to shared condo spaces that exceed master policy coverage
How much does it cost?
Typically between $10-$75 a year
Standard condo insurance policies typically do not include loss assessment coverage. Policyholders who want extra protection must opt into a loss assessment rider and pay slightly higher condo insurance premiums.
COAs “assess” any costs that exceed their master policy limits, meaning they get divided and distributed between their community members. For example, surplus damages of $50,000 in a 50-person structure would equal $1000 per resident, paid for by their individual loss assessment plans. Those without loss assessment riders would have to cough up $1000 out-of-pocket.
Why Get This Optional Coverage?
Purchasing condo insurance without additional loss assessment coverage carries enormous risks. Consider the following:
- Huge out-of-pocket costs: By securing loss assessment coverage, you would not have to worry about reimbursing any damage to common areas in your condo. Depending on the scenario, out-of-pocket costs can reach hundreds of thousands of dollars.
- Financial consequences for non-payment: If you do not have coverage and refuse to pay out of pocket, your COA can levy late fees and fines, garnish your wages, or even place a home lien on your condo if necessary.
- Social consequences for non-payment: Refusal to pay can also result in revoked COA voting rights and restricted access to common areas.
What It Covers
Loss assessment coverage protects against the same type of perils found in standard homeowners policies—damage or injury from fire, winds, etc. Though the details will vary, most providers cover the following three types of losses.
Building and Common Area Damages
Once the COAs master policy reaches its limit, a resident’s loss assessment coverage would pay to repair or replace their share of damages to the building or its communal areas resulting from covered perils like fire or falling objects. Damage assessment typically gets split evenly among COA members, though this can vary depending on your COA-specific bylaws.
Imagine if a tree fell through your building, reaping $600,000 in damage. If your COA’s master policy caps out at $500,000 of coverage, the remaining $100,000 falls evenly between you and all the other tenants. If this building houses 20 families, each must pay $5,000 for repairs, coverable by their loss assessment riders.
Liability Claims From Injuries
The COA’s master policy also factors in medical bills or lawsuits filed by guests who hurt themselves in shared building spaces like stairwells, parking garages, gyms, swimming pools, tennis courts, or clubhouses. Building residents must typically split the difference left from hospital bills or drawn-out litigation fees that exceed the COA’s master policy limit.
Liability assessment functions identically to damage assessment. Loss assessment coverage reimburses condo members for the special assessment fees levied by their COA resulting from master policy spillover.
Master Policy Deductible Special Assessments
Even if their master policy fully covers damage or liability charges, many COAs make their members responsible for the out-of-pocket deductible attached to each claim. COA master policy deductibles can reach as high as $25,000, sticking each resident in a 25-home building with a $1,000 special assessment fee. Unit owners with loss assessment would not have to worry about paying this out of pocket.
What Is Not Covered
Even condo owners with expansive loss assessment plans must pay out of pocket for certain damages:
- Perils like floods and earthquakes — typically excluded from standard homeowners insurance policies — will not receive coverage from a loss assessment endorsement.
- Non-structural maintenance, such as building upgrades or cosmetic repairs, are not covered.
- Claims that would otherwise fall under your baseline condo insurance policy or the COA’s master policy are not covered.
How Much Does Loss Assessment Coverage Cost?
Though costs vary depending on your insurer and the level of coverage you opt into, condo owners can usually purchase loss assessment riders for a marginal fee. These plans can cost as low as $10 per year and rarely exceed $75 annually. Considering the financial consequences of a natural disaster or unforeseen lawsuit, this coverage is often a beneficial addition to any condo insurance policy.
How Much Coverage Should You Get?
The amount of coverage you should get depends entirely on your situation. For example, if you live in a building with many common spaces susceptible to damage or liability lawsuits, you should enroll in a more comprehensive loss assessment package. The same goes for members of low-occupancy facilities, as the spillover costs from their COAs master policy get split between fewer people, resulting in larger individual bills.
Typically, a standard policy would include $100,000 of coverage, though residents who want to save on premiums can choose coverage levels as low as $10,000.
How to Buy Loss Assessment Coverage as a Homeowner
Condo owners can purchase loss assessment coverage as an optional add-on to their homeowners policy. Just follow this simple process before settling on a final plan.
1. Review your condo association’s master policy
Ask for a copy of your COA’s master policy from the condo association’s board. Since this coverage for homeowners directly covers charges that exceed this master policy, condo owners should scan the contract for the claims the COA takes responsibility for, their coverage limit, and the affiliated deductibles.
Residents should also ensure that the condo association has remained up-to-date on its premium payments, as charges on lapsed policies would fall between themselves and their neighbors.
2. Determine how much coverage you would like
Determine your coverage against how your COA handles assessments. You want to ensure enough protection to cover charges your master policy will not absorb. Condo owners must pay out of pocket for the difference resulting from claims that exceed the COA’s coverage restrictions.
Furthermore, many COAs enroll in plans with extremely high deductibles in exchange for lower premiums. Members should enroll in enough coverage to match their potential share of this deductible.
3. Contact your current homeowner’s insurance company to add the loss assessment coverage to your policy
Your homeowner’s insurance company should make loss assessment coverage available as an optional endorsement. Policy endorsements (AKA riders) allow amendments to insurance contracts that change the terms of the original policy. Policyholders can purchase them at the contract’s onset, mid-term, or renewal for an adjusted premium.
Contact your insurer anytime to discuss adding this coverage to your condo insurance package.
4. Review confirmation of the endorsement in your updated policy documents
Once you have opted into and purchased loss assessment coverage, review your homeowners policy’s declaration page to confirm your updated contract. Keep a copy of this new contract within reach to provide evidence of the new terms, if needed, during a future claim. You hold the right to challenge coverage denial or underpayment by your insurer in court.
Filing a Loss Assessment Claim
Filing a loss assessment claim typically resembles the exact process of a homeowners insurance claim. Call your home insurance provider, explain the incident in detail, and fill out a “proof of claim” form. You may need to get repair quotes from your COA and share their master policy details with your insurance company. Your insurance provider will pay your COA for the loss assessed up to the amount covered in your policy.
Putting It All Together
Though COAs typically do not require members to purchase this coverage, condo owners should understand the benefits of adding one of these riders to their homeowners policy. Condo owners can opt into comprehensive loss assessment coverage for the equivalent of a few cups of coffee a month—well worth it, considering the financial implications of liability lawsuits or the costly structural repairs that a natural disaster could exact.
If you live in a community building, especially in a disaster-prone area, talk to your homeowners insurance representative about loss assessment coverage as soon as possible.