Whether your condominium is located in the center of a major city or on the outskirts, it costs at least a few hundred thousand dollars – the average price of a condo in New York and Los Angeles can reach $1 million for that matter – and is likely insured. And just not insured! It is insured by both your HOA insurance and condo insurance, which altogether creates a feeling of eternal safety.
Alas, the two mentioned insurances do not safeguard you against all possible risks. Not only may navigating homeowners associations be tricky, but there might be situations when you’ll need more than the two mentioned coverages. But let’s not get ahead of ourselves. Before we proceed to dissect this unique and helpful type of coverage, let’s elaborate on what makes up a typical condo insurance policy.
Typical Condo Insurance: HOA + Your Condo Policy
Typical coverage for a condominium comprises:
- HOA policy (aka as the master policy), which is managed by the condo association.
- Your condo insurance policy: property, liability, and – attention – loss assessment.
Now, why would you need some extra coverage on top of everything? Let’s dig deeper into it.
The Gist of Loss Assessment Coverage
Condo associations do provide some coverage under the HOA policy – coverage for the building structure, perils, and liability (accidents that happened on a shared condo territory belonging to HOA) – but it may not be enough to safeguard you against financial troubles, and here’s why:
- HOA coverage usually includes high deductibles, whereas the rest is distributed between the condo owners.
- HOA coverage – just like any other coverage – does have an upper limit, whereas the excess is distributed between the condo owners.
Your condo insurance – as well as the specific loss assessment part of it – may come in handy anytime when the deviation from the expected takes place.
Now, what specifically does loss assessment coverage, also known as loss-based assessment coverage, cover? Loss assessment coverage for condos covers claims that weren’t fully paid by the HOA policy (the policy of your condo association). In other words, it covers anything that is not part of your condo unit but is a shared part of the condo.
Special Assessment Insurance
To avoid any confusion with the terminology, let’s clarify: special assessment insurance is exactly the same as loss assessment coverage. Therefore, it provides the same type of protection, mitigating the financial risks coming from the shared property’s claims that were not fully covered (paid) by the HOA insurance.
Two Examples When Loss Assessment Coverage May Save the Day
Loss assessment coverage may come in handy in many cases, though the most common are the next two:
Damage Assessment: Catastrophic Damage That Exceeds The HOA Limits
Even though the master insurance can cover $250,000 or $500,000 or even as much as $1,000,000, it may not be enough to cover the expenses coming from a storm or fire. When the structure or the outsides of the building is severely damaged, the unlucky co-owners sometimes have to chip in. For example, if the HOA coverage limit is $250,000, the actual losses are $500,000, and there are 100 co-owners, then each of them will have to pay $2,500 out of his or her pocket. However, if you owned loss assessment coverage, it would cover your part of the expenses.
Liability Assessment: Severe Physical Injuries On Common Property
Whether this is a shared gym, pool, or restaurant that witnessed a severe physical injury of a third party, the HOA limits may not be sufficient to cover the expenses. Loss assessment coverage, however, will come in handy to cover the excess.
Note, though, that loss assessment coverage does have its limits as well, which are determined independently in each case.
What Cannot Be Covered?
Not only does this coverage have its monetary limits, but it is also limited as to the number of cases that it applies to. For example, if your cooperative issued a assessment to cover the costs of a maintenance project – for example, the renovation of one of the pools – then your loss assessment coverage wouldn’t cover that.
As a rule, renovation, maintenance, and repair are not covered.
How Much of It Do You Need?
There are two things to check in advance:
- First of all, verify if your master insurance policy is being paid for. Surprisingly enough, sometimes condo cooperatives fail to pay the premium in time, thereby allowing the policy to lapse. It is a pretty rare occasion, but, as you know, it’s better to be safe than sorry.
- Secondly, make sure whether your association spreads costs across all co-owners or only those whose units were affected.
- Last but not least, check your current condo policy. It may already include some assessment coverage, and it may even be enough.
Then, as you know the peculiarities of your case, you can proceed to purchase your condo loss assessment coverage.
How Much Does It Cost?
Loss assessment coverage costs pennies. More often than not, you can buy it for as little as $10 to $50 per year, which is peanuts compared to the safety it provides, covering up to $100,000 and more. At the same time, the premium may increase significantly if you want to increase the loss assessment coverage limits or decrease the deductible on your policy.
How to Sign Up for It?
You can purchase the coverage you need from your insurance provider. What’s more, it may go as an endorsement to your existing condo policy, which means you can just add it to your existing policy, leaving the rest of it intact. Note, however, that your premium will inevitably increase as you add extra coverage to your policy.
What If You Fail to Pay?
Loss assessment coverage is very helpful in reducing – if not nullifying – the legal risk of the inability to pay the share. Should an expensive claim occur and you don’t have enough money to pay, a legal proceeding may follow. However, if you have an adequate amount of coverage, you will likely be able to deal with any financial adversity.
Oleksandr is an expert in deep research. He covers insurance topics across four major insurance verticals – auto, health, life, and home insurance – while taking into account the legal landscape of the state in question. Come rain or shine, you can expect regular quality blogs and timely updates from Oleksandr.