Loss Assessment Explained for Condo Insurance
Condo Owner Coverages: How Loss Assessment Insurance Protects You
What is Loss Assessment in Condo Insurance?
Loss assessment is defined as insurance coverage for condo owners that provides protection for situations when you as an owner of a shared property, like a condominium or co-op, is held financially responsible for a portion of the costs for deductibles or damage to:
- The building
- The shared areas of the property
- Injury in shared areas
How Does Loss Assessment Work?
The amount to be paid by each owner is assessed by the homeowners association (HOA) or condo owners corporation or association, this is known as the loss assessment. As an owner, you then have to pay your share to cover the damage.
Loss Assessment Insurance on a Condo Policy HO-6
Loss assessment provides coverage for certain kinds of losses where the condo or homeowners association (HOA) would ask you to pay for your share of damages that are either not covered under the building master policy or exceeds the existing coverage on the building or HOA insurance policy.
What Does Loss Assessment Cover?
Loss assessments could apply to property damage, liability, injury on-premises, or deductibles. Loss assessments can apply to any property owner who owns a unit within a shared community property usually managed by a condo owner association or HOA.
How to Get Loss Assessment Coverage
Loss assessment is a coverage that is part of a condo policy form. When you buy your insurance policy, you can ask about the coverage for loss assessment to understand what your limit is and check your insurance amounts on your policy declaration page. Make sure to ask about exclusions and limitations on the loss assessment coverage; this varies from insurance company to insurance company.
If you have just purchased new insurance for your condo, townhouse, or co-op, you can also ask to see the information on your binder of insurance . Often a Condo Owner Association or HOA may ask you to provide this at the time of signing for your new property.
Why Is Loss Assessment Coverage Important?
Loss assessment helps protect you from the unexpected expenses that you may have to pay as a result of damages and issues related to the building or property grounds your condo or residence is a part of. It also helps protect you if your HOA has not insured the building properly or has taken a very high deductible to save money. When the HOA determines the actual loss due to the damage and divides the costs among owners, your condo policy loss assessment coverage could help you pay for these costs.
Doesn't Condo Building Insurance Pay for the Damage?
No. Many first-time condo owners assume that their HOA building insurance will be sufficient to cover the costs associated with damages to the building and shared areas. What condo owners don't always consider is that even if the damage may be covered by the building master policy, buildings often have very high deductibles; therefore condo owners then become responsible for paying their portion of the deductible determined by the assessment, even if the damage itself is covered by the insurance.
Condo Building Deductibles and Loss Assessment
Building deductibles on a master policy could be as low as $5,000, but could go higher than $10,000 or $50,000 depending on the insurance the HOA took on the building. Inform yourself about the type of coverage your condo association has on the building by asking questions. Otherwise, you could end up with some high costs due to loss assessments.
What Does Loss Assessment On My Condo Policy Cover?
Loss assessment on your condo or co-op policy may apply to:
- Claims arising from situations including the building itself
- Shared areas of the structure your condo is a part of
Be sure and ask about exclusions and limitations of your loss assessment insurance coverage because it varies depending on your insurance policy. These are general guidelines to help you understand loss assessment and give you a chance to discuss this with your insurance representative so you can find the best protection for your state and circumstances.
Does Loss Assessment Cover All Assessments?
No. Depending on your insurance coverage, your policy may not include coverage if you didn't buy insurance for the risk or peril that the assessment is for.
For example, if the homeowner association or condo association levies a loss assessment against you for earthquake damage and your insurance did not cover earthquake, you may not be covered. Ask your insurance representative to go over the specifics of your coverage and exclusions. Pay special attention to water damage, which is a major issue for condo insurance.
When Is There a Loss Assessment From Your Condo Association?
- When the loss exceeds the amount covered on the HOA or condo association insurance policy
- When there is no coverage by the condo association insurance for a loss
- When the loss is under the deductible and the cost will then be shared by all owners
The value of the loss is assessed and may be divided among all individual condo unit owners, or in the case of a co-op, the renters.
Condo Master Policy Shortcomings in Insurance Coverage
When the Master Policy or Home Owner Association (HOA) policy covers a loss, but the damage exceeds coverage available in the building insurance policy, the owners of the individual units may then become liable for a shared portion of the coverage that the underlying association insurance was not sufficient to cover.
Loss Assessments and Deductibles
Loss assessments can also apply to the deductible payable on the master policy coverage. Building insurance deductibles may be high and could be in the thousands of dollars. When a deductible becomes payable in a claim, the amount is divided among all the individual unit owners.
How to Get More Loss Assessment Coverage on Your Policy
If you do not think your loss assessment coverage is high enough after finding out about your condo or homeowner association's building insurance coverage and deductibles, ask to find out if you can increase your loss assessment by adding an endorsement. You could also shop around to find out if another insurance company will protect you better. Different insurance companies offer different levels of insurance coverage based on your lifestyle; this applies for loss assessment as well. You may also benefit from looking into high-value home insurance which provides higher limits of coverage as part of their standard condo or co-op policies.
The best way to find out is to discuss the options with your insurance representative or broker. If your current insurance company can not help you, and you find better coverage elsewhere, you may consider canceling your policy to get the coverage you need; you do not need to wait for your renewal date to change insurance company.
Limits of Coverage on Condo Policies: Loss Assessment
Insurance policies have specific limits for many coverages, such as jewelry or collectibles, Make sure to find out what your limits are, and also find out if there is a limit for assessments due to a deductible.
Because every master condo or HOA policy is different, your needs for loss assessment coverage will depend on the type of coverage your Condo association or HOA has on the building. Make sure you find out about your association's building coverage and that you are well protected with your own individual policy. Do not ever rely on the condo building insurance to protect you fully. Every condo or co-op owner should have their own personal insurance policy, this will help avoid excessive costs and surprises.
Insurance Services Office, Inc. "Homeowners 6 – Unit-owners Form." Page 18. Accessed Jan. 30, 2020
International Risk Management Institute. "Loss Assessment." Accessed Jan. 30, 2020
Nationwide. "Loss Assessment Coverage." Accessed Jan. 30, 2020
Chubb. "Condos and Co-Ops Coverage Highlights." Accessed Jan. 30, 2020
Insurance Services Office, Inc. "Homeowners 6 – Unit-owners Form." Page 6. Accessed Jan. 30, 2020
International Risk Management Institute. "10 Steps to a Well Designed HO-6 Policy." Accessed Jan. 30, 2020
Massachusetts Association of Insurance Agents. "The Master Policy Deductible v. Personal Condominium Insurance ... Who Does What to Whom 2015?." Accessed Jan. 20, 2020
Insurance Services Office, Inc. "Homeowners 3 Special Form." Page 3-4. Accessed Jan 30, 2020.