What is loss assessment coverage?
Loss assessment coverage is a policy endorsement that you can add to your home insurance or condo insurance policy if you live in a condo or homeowners association (HOA). It kicks in for deductibles for your shared community's HOA master policy, or property damage and liability incidents in common areas that exceed the master policy's coverage limits.
How does loss assessment coverage work?
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 is injured 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. It might also require you to chip in to pay for the HOA master policy deductible for the claim, which can cost anywhere from $5,000 to $50,000.
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.
Let's take a look at an example.
Say the HOA master policy has $500,000 in property coverage and a storm causes $600,000 in damage to your condo's shared areas.
The HOA policy would cover the first $500,000 of the loss, but then the remaining $100,000 would be "assessed" to members, which means the cost is divided and split among everyone in the community.
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 when your HOA's master policy coverage has reached its limit:
Property claims for damage to common areas, like your community's clubhouse, gym, pool, playground, or the hallways and roof of the building itself if you live in a condo
Liability claims if someone is injured in a building or common area
Deductible costs that the home or condo association passes on to you when they file a claim
How much loss assessment coverage do you need?
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 live in your HOA subdivision or condo complex. If there are 100 homes or condos, 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.
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.
While loss assessment coverage is already part of most standard home and condo insurance policies, you’re generally only covered up to $1,000 — and it doesn’t include coverage for liability assessments, only property assessments.
If you want higher coverage limits, you’ll need to pay extra to add a loss assessment coverage endorsement to your policy. Loss assessment coverage limits can range anywhere from $10,000 to as much as $100,000.
What if you don't have loss assessment coverage?
If you don't have loss assessment coverage and your HOA or condo association charges you assessments for a property or liability claim, you'll have to pay for that out of pocket. If you don't, you'll likely be charged late fees, be banned from using common areas, or even have a lien placed on your home or condo.
Frequently asked questions
What is a loss assessment?
A loss assessment is a fee your HOA or condo association charges you for property damage or liability incidents that occur in common areas of your community. A loss assessment can also be your share of the HOA master policy's deductible for the claim. Loss assessments are charged when the claim exceeds your HOA's master policy.
Does loss assessment coverage have a deductible?
Some insurers might require you to pay a deductible for your loss assessment claim. But it's typically much lower than what you'd have to pay if you didn't have loss assessment coverage.
What is loss assessment coverage on a condo policy?
Loss assessment coverage on a condo policy is an optional add-on that pays for your portion of damage to common areas or liability incidents that occur there. You're charged a loss assessment fee when the damage or injury claim exceeds your condo association's master policy.
