Your Loss Assessment Coverage Guide

Regardless of whether you live in a townhome, a single-family home or a condo there is the possibility that your property is part of a homeowners association (HOA). An HOA is simply an association based in your neighborhood that is responsible for overseeing the maintenance of common areas, certain amenities, and services in your neighborhood. Most HOA’s charge homeowners a fee to fund the HOA, the fee may be paid monthly quarterly or annually.

HOA’s are designed to cover the costs to repair damage to common areas or cover the medical and legal costs of injuries that occur in the common areas. However, it is possible that some costs maybe passed from the HOA to homeowners in the area. Loss assessment coverage which is typically part of a homeowner or condo insurance policy may help cover some of these costs.

Loss assessment coverage explained

While loss assessment coverage can vary from one insurance company to another, in most cases it will provide protection from three types of losses which include damage, liability, and deductibles. 

If your neighborhood or condo association has an HOA, typically the HOA will have an insurance policy in place that is referred to as the master policy. The master policy will cover losses to common areas and the building. In single family home neighborhoods, the master policy typically covers areas such as the swimming pool, tennis courts and any playgrounds. 

The master policy for an apartment or condo also covers common areas but may also provide some coverage for the residential structure such as the building the condo is located in, but you must carry a separate policy to protect your personal belongings, and anything located within the interior walls of the building. 

Despite the fact that HOA’s carry a master policy there are circumstances where members of the HOA may be required to pay some of the expenses that are not covered by the master policy, this is usually called a special assessment. Loss assessment coverage may help policyholders to cover the cost of a special assessment. 

What is covered by loss assessment coverage?

Coverage may vary by insurance company but in most cases loss assessment coverage will provide protection against three types of losses:

• Damage assessments: If a common area in an HOA is damaged by a covered peril, as an example the roof suffers damage due to a windstorm the master policy should step up to cover the cost of repairing the roof. However, if the HOA master policies coverage limits are exceeded the members of the HOA may have to step up to cover the difference. In this case loss assessment coverage may help pay your portion of the additional cost.
• Liability assessments: If someone is injured in a common area such as a parking garage, swimming pool or tennis court they may sue the HOA for their medical or legal costs. In most cases, the HOA master policy would cover these damages but if their coverage limits are exceeded a special assessment may be issued requiring homeowners to cover the difference. In this case loss assessment coverage may help pay your portion of the assessment.
• Deductible assessments: Like most insurance policies, a HOA master policy comes with a deductible amount. The deductible is how much the policyholder, in this case the HOA, would have to pay out of pocket before the insurance would cover the balance of the claim. HOA master policies tend to come with large deductibles.

If a claim amount ends up being less than the HOA master policy deductible the HOA may issue an assessment to the HOA members to cover the cost of the repair. In this situation, loss assessment coverage may step up to help pay your portion of the repair bill.

Should I carry loss assessment coverage?

Depending on your insurance company, loss assessment coverage may be included with your homeowners policy or it may be an additional coverage that must be purchased separately. 

If you live in a neighborhood with an HOA or a condo that has a HOA, you should consider carrying loss assessment insurance. Special assessments can run into the thousands of dollars so loss assessment coverage can be a financial life saver if you are issued a massive assessment. 

When purchasing loss assessment coverage read the HOA master policy to determine how assessments are handled and how much you could be on the hook for if a major assessment is issued. Choose coverage limits that should cover your assessment costs in most situations. 

How to purchase loss assessment coverage

Most home insurance providers will offer loss assessment coverage. If you are purchasing a home, condo or townhome in an area that has an HOA be sure to ask your insurance agent if loss assessment coverage is included in the policy or if you need to purchase the coverage separately.

When determining coverage levels for loss assessment coverage consider the number of residents in your area as well as what common areas are protected by the HOA master policy. it is also possible that your HOA board members would have recommendations regarding coverage levels.