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What is loss assessment coverage?

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When it comes to insurance, condo owners are in a unique situation. They own their unit but not the building it’s in. While condo owners are financially responsible for their unit, the building’s tenants share responsibility for damage that occurs in common areas. This is where loss assessment comes in.

How does loss assessment work?

Loss assessment coverage protects people who live in shared spaces like a condo and are financially responsible for losses that happen in certain parts of the building. That includes damage to common spaces and injuries that occur in shared areas.

Loss assessment coverage is typically included in an HO-6 insurance policy, also known as condo insurance. If it’s not included, condo owners are encouraged to purchase loss assessment coverage. The building’s homeowners association (HOA) might also require it.

With loss assessment, condo owners pay dues to their HOA to cover everything from operating costs to pool maintenance to gardening. If damage or an injury occurs in a common area of your building, the HOA’s insurance will cover the losses. However, if the losses extend beyond the policy’s limit, the condo owners may have to pay an equal amount to cover the difference.

Depending on the leftover cost, each condo owner might have to pay a few hundred dollars or a few thousand dollars. The HOA would assess you for the outstanding amount. With loss assessment coverage, you won’t have to pay for those expenses out-of-pocket.

For example, say a major hurricane tears through your city and your condo building sustains $500,000 in damages. Your HOA’s master insurance policy has a limit of $350,000, so a majority of the cost would be covered. However, the remaining $150,000 has to be divided up and paid for by the condo owners. With loss assessment insurance, your portion would be covered.

What does loss assessment cover?

Loss assessment covers three main areas: damage to common areas, liability assessments and master policy deductible assessments. However, it only applies when the damages are covered by the dwelling or liability portions of your condo insurance. Here is how you are protected:

  • Damage to common areas: If a shared space gets damaged by a covered peril and the HOA is responsible, loss assessment will reimburse you for the portion of the expenses. Shared spaces include lobbies, lounge areas, pools, pool houses, tennis courts and laundry rooms.
  • Liability assessments: If a guest injures themselves in a common area of the building and the HOA is at-fault, loss assessment coverage would help you cover your expenses if the losses surpassed the HOA insurance policy limits.
  • Master policy deductible assessments: Some HOA’s have a master policy deductible, which essentially makes condo owners responsible for paying the deductible after a covered loss. If you get assessed and have to pay for a portion of the deductible, loss assessment coverage will reimburse you.

If a single covered peril damages multiple shared areas, your condo’s HOA will give you separate assessments for each one. For example, if a windstorm caused damage to your condo’s shared outdoor spaces, tennis court and pool, you would receive three assessments. However, your insurance company will consolidate those assessments and consider it one assessment. This helps you save money.

How to get loss assessment coverage

Loss assessment coverage is included in all HO-6 condo insurance policies. However, different insurance companies include varying coverage levels and policy limits for loss assessment. Before you purchase a condo, ensure you have enough coverage. If you need coverage above what your basic policy offers, you can raise your limits by purchasing an endorsement from your insurance provider.

To check how much loss assessment coverage you have, refer to your insurance policy’s DEC page or binder of insurance. When you purchase a new condo, the HOA may require you to submit proof of HO-6 insurance and loss assessment coverage.

Loss assessment on an HO-6 insurance policy

An HO-6 policy is another name for condo insurance. HO-6 insurance covers your personal property, liability and interior damage to your unit. The condo’s HOA insurance covers any damages to the outside or structure of the building.

If you have an HO-6 policy and your condo’s HOA assesses you for shared losses, loss assessment coverage will reimburse you for your portion of the cost.

How much loss assessment coverage do you need?

Loss assessment is automatically included in your condo or home insurance policy. However, the coverage limit is usually up to $1,000. If a major loss occurs, you may need coverage beyond that to avoid paying out-of-pocket. To determine how much loss assessment coverage you need, there are a few things to consider.

If you live in a large condo complex with amenities, like a swimming pool, patio or gym, you will likely need a high amount of loss assessment coverage. The more areas that could potentially get damaged or cause injuries, the more coverage you should get.

Also, consider the number of condo owners in your building. The more condo owners there are, the less you will be assessed. For example, if there are 100 condo owners in your community, you will need less coverage than if there were 20. More people means each person will be responsible for less money.

The takeaway

  • Loss assessment coverage protects you if your HOA’s insurance limit is less than the cost of a covered loss.
  • Loss assessment is part of most standard condo insurance policies.
  • Loss assessment covers damage to common areas, liability assessments and master policy deductible assessments.
  • Ensure you have enough coverage before purchasing a condo.

If you own a condo, you probably have loss assessment coverage, even if you’ve never used it. Loss assessment coverage protects you from having to pay for losses in shared spaces if the cost exceeds the HOA’s insurance limit. The most common losses include damages and injuries in areas like pools, lobbies and tennis courts.

Although HO-6 policies come with loss assessment coverage, make sure you have enough coverage to protect yourself. Before purchasing a condo, check your policy’s limits. In certain situations, you may need more coverage than your standard policy. It’s easy to raise your coverage level by purchasing an endorsement for an added fee.

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