Flaming elevators! Roofs torn off by tornadoes! Lobby floors so slick they could double as slip ’n’ slides! (That last one sounds kind of fun, but it can do a lot of damage to an elbow or a tailbone.) What do all these risks have in common?
They’re all dangers insured by loss assessment coverage—if you live in a community with shared amenities. We’re talking condominiums, townhomes and HOA neighborhoods.
Shared community perks are awesome! But as a resident of a shared community, sometimes you also share the responsibility for losses or damages in common areas, like lobbies, swimming pools and elevators. And when the bills for those losses and accidents come in, loss assessment coverage can save you money.
So, what exactly is loss assessment coverage? And how does it fit into a smart insurance strategy? We’re going to talk about what it is, how it works, what it covers, and whether you need it.
What Is Loss Assessment Coverage?
Loss assessment coverage (also known as special assessment insurance) is an optional layer of property insurance you can add to your condo insurance, townhouse or homeowners policy to help foot the bill for accidents in common areas. (And FYI, even though apartment complexes and mobile home parks have common areas, loss assessment coverage doesn’t come into play if you live in those.)
If you’re living that shared community life, you’re probably loving the shareable fun of swimming pools, playgrounds and golf courses. But that ain’t all you and your neighbors share! You also have to split the cost for those amenities and a portion of insurance claims in those areas. In certain unhappy events, having loss assessment coverage can come in real handy.
(By the way, since HOA fees are usually higher in a condo when compared to a townhouse, getting loss assessment matters more for a condo—but it’s still an option for you townhouse peeps.)
How Does Loss Assessment Coverage Work?
You may be thinking, What about the master policy? Don’t I pay HOA fees for common area insurance coverage? Yes, your HOA or condo association does have a master policy, and it definitely helps protect you and your community from the risk of losses in common areas. In fact, most incidents in shared areas are well within the master policy coverage.
But like any kind of insurance, there are limits. Massive accidents like tornadoes, fires and slippery floors can destroy roofs, elevators and ankles—and losses like those can get expensive!
When a loss reaches a certain cost level (or if it isn’t covered by the master policy), your HOA will be liable for whatever’s left to pay. Guess where the payment comes from? Your condo or HOA will assess the loss to you and your fellow homeowners. (That’s where the term loss assessment comes from.)
Now even without loss assessment coverage, most individual policies for a condo or HOA home will cover you for $1,000 when there’s an incident (that’ll either go toward the master policy limit or the deductible if the loss is covered). So at least you’ve got that going for you. But if you have loss assessment coverage, it kicks in above that initial grand and might just keep you from having to drain your emergency fund (and then some) to cover your community obligation.
What Does Loss Assessment Cover?
Did we mention that loss assessment coverage only applies to townhomes, HOAs and condos? (Yeah, we did, but it’s important to note so nobody spends money on a useless insurance policy.) If you do own a property in a shared community, there are three basic kinds of loss that loss assessment can help cover:
- Property damage
- Medical expenses
- Liability costs
What Is Loss Assessment Coverage in a Condo Insurance Policy?
Let’s think back to that tile-tearing tornado we imagined earlier. That kind of twister could demolish your whole condo. If the repair costs add up to more than the master policy limit, your condo association might make each condo owner pitch in to cover the rest of the bill. If you have loss assessment coverage, it can help cover some or all of your portion of these expenses, so you don’t end up paying out of pocket.
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For example, let’s say your mischievous 9-year-old is playing with matches and accidentally starts a fire—the whole idea probably gets you sweating just thinking about it! If that fire spreads to other units, your HOA might require you to pay their whole deductible since it was technically your fault. In a situation like that, you’d have a lot to deal with, but at least loss assessment coverage could ease some of the financial pain.
What Are the Limits for Loss Assessment Coverage on Condo Policies?
And while you’re asking about what loss assessment does cover for condos, it’s worth asking what’s outside the scope. Imagine your condo HOA decided to spruce up its landscaping. As nice as that sounds, you can’t use loss assessment to help you cover your share. That’s what Gain Assessment Coverage is for—just kidding, that kind of policy doesn’t exist.
What Is Homeowners Loss Assessment Coverage?
While there are plenty of differences between house vs. condo living, loss assessment coverage works about the same in both types of housing. For example, if your house’s neighborhood includes a golf course, it’s easy to imagine a stray ball slicing the wrong way and smacking a nearby jogger upside the head. And what do you know? He winds up with a concussion and some hospital time. Then, the medical bills exceed your HOA’s master policy limits.
You can see where this is going. Every homeowner in the HOA will get a bill for their personal share of the remaining costs to help heal that poor noggin. But if you have loss assessment coverage, it will cover at least some (and often all) of your share!
What Are the Limits for Loss Assessment Coverage on Homeowners Policies?
Let’s say your HOA decides to improve the walking paths in your neighborhood and sends you a bill for your share of the cost. Can you make a claim on your loss assessment policy to cover it? No way! Like we said earlier, that policy only covers the cost of accidents, not new improvements in the HOA.
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How Much Loss Assessment Coverage Do I Need?
When you’re figuring out how much loss assessment coverage you need, start with your particular townhome, condo or HOA requirements and bylaws. They’ll spell out the limits for your community’s master policy, and they’ll often recommend specific amounts of loss assessment coverage for residents.
How Much Does Loss Assessment Coverage Cost?
Loss assessment coverage will typically run you just a few extra dollars a month on your townhome, homeowners or condo insurance policy. So if you’re willing to drink one less fancy latte a month, you can swing this. And the coverage amounts range from $10,000 to $100,000.
Why Is Loss Assessment Coverage Important?
Loss assessment coverage is important because life is messy. Think about it! Something as random as a gust of wind can blow the tiles off your condo roof, fan the flames of a lobby fire, or cause that wayward golf ball to slice the wrong way and end up colliding with your neighbor’s face. Shifts happen. And when they do, loss assessment coverage can be a lifesaver! On top of being very affordable, it could save you a pile of money someday if your community suffers a big ol’ random emergency.
Do I Need Loss Assessment Coverage?
Well, if you don’t live in a townhome, condo or HOA, then you definitely don’t need it. Then again, you’re probably not reading this article unless you do live in a shared community like that. Assuming you do, we think loss assessment coverage is worth looking into. As a reminder, you need to get familiar with your own community’s bylaws, master policy limits and deductible amounts. You’ll also want to be aware of your own personal condo or homeowners coverage amounts and deductibles.
Depending on those numbers, it’s likely this coverage would be a smart move for you—especially since it’s super inexpensive.
How to Get Loss Assessment Coverage
Whether you’re just now getting into a shared community, or you’re already in one, adding loss assessment coverage to your required homeowners or condo policy should be pretty easy. Your agent can give you the details and pricing options. As we said earlier, it’s typically just a few extra dollars a month for a lot of coverage.
Sitting down with a RamseyTrusted insurance pro can take the mystery out of any kind of homeowners insurance—including loss assessment coverage. They’ll be sure to help you understand what’s covered—and what isn’t—while getting you all the coverage you need to protect your home.
Plus, working with an independent agent who isn’t tied to one insurance company might help you save money on homeowners insurance. That’s because they can shop around for rates from dozens of different companies and find the best deal for you.
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Frequently Asked Questions
What's an Example of Loss Assessment?
Windblown tiles from a condo roof. Fire in an elevator. An injury to a visitor in one of your HOA’s common areas. These events, and many more, are examples of incidents where loss assessment can come into play. In each case, your HOA or condominium association will be responsible for paying the repair or medical bills. And in each case, your HOA is hoping its master policy will be able to cover the bill. But that doesn’t always happen. If the association sends you a special assessment, it means they’re asking you to fork over your share of any remaining balance toward the loss. Some people simply pay this out of pocket, which can really put a dent in a budget. But with loss assessment coverage, you’ll be able to cover your share no problem!
Is Loss Assessment the Same as a Deductible?
Your loss assessment policy is not the same thing as the deductible in your shared community’s master insurance policy. Your HOA will have to pay its master policy’s deductible before the insurance company will pay out on a claim for loss or damage. Those deductibles are often assessed to individual homeowners in the community, who must foot the bill equally. But you can use your personal loss assessment policy to help cover your own share of the HOA deductible.
What is the Difference Between Loss Assessment Insurance and Special Assessment Insurance?
There is no difference between loss assessment insurance and special assessment insurance. They’re just two names for the same extra layer of protection above and beyond your individual homeowners insurance and your shared community master policy.