As a condo dweller, you’ve got it good. Everything inside your walls is your kingdom. You pay your homeowners’ association dues so the HOA can take care of the rest, maintaining the building, common areas, landscaping and more.
So, if a fire damages the lobby of your building, you’re not out any additional money, right? Actually, not quite.
When an HOA has an unexpected loss to cover, it may bill back a percentage of the cost to the property owners, dividing it among the units. It’s known as a loss assessment, and, no, your monthly dues don’t cover it.
Let’s say the lobby sustains tens of thousands of dollars’ worth of damage in a fire. The good news is, your HOA’s insurance policy will cover it. The bad news is, there is a deductible the HOA has to pay, and it could cost thousands of dollars. Your HOA may issue a Loss Assessment to cover the deductible. So, if your building has 10 units and the deductible is $5,000, your share could be $500. That’s doable.
Now, however, imagine a guest sustains a serious injury while the lobby is under construction and wins a lawsuit against the HOA. The HOA’s liability insurance covers most of the settlement, but there’s $500,000 left to pay. Time for another loss assessment, and this time your share is $50,000. Not so doable.
Is there any way to avoid paying the entire $50,000 out of your own pocket? Possibly. The typical condo insurance policy includes Loss Assessment Coverage for just such occasions, but there are a few important things you should know:
- Consider purchasing additional Loss Assessment Coverage. Your condo policy may automatically include $1,000 worth of Loss Assessment Coverage. That’s not going to make a very big dent in that $50,000 assessment. Which is why I always recommend obtaining the highest level of Loss Assessment Coverage your insurance carrier offers. In California and other states, it’s typically $51,000.
- Know what types of assessments may be covered. Most insurance is for unexpected events, not routine maintenance. Loss Assessment Coverage is the same. If your HOA issues an assessment for routine maintenance, such as painting the building, you won’t have any coverage. If it issues an assessment for a covered loss, you do have coverage.
- Understand your policy. Your condo insurance policy outlines the types of losses it covers. Fire and theft are typically covered incidents, for example. Earthquake and floods are not. These exclusions are typically policy-wide, applying to each type of coverage under your policy. So, just like you wouldn’t have any Personal Property Coverage under your condo policy for an earthquake, you won’t have Loss Assessment Coverage for an earthquake.
- Cover all your properties. You may own both a single-family home and a vacation condo, each with its own HOA. If so, be sure you have Loss Assessment Coverage on each policy. It’s typically available for all homeowners with an HOA, whether you own a condo, a townhome or a house.
The next logical question, of course, is: Do I have Loss Assessment Coverage, and how much? Talk to your independent insurance agent to find out and to purchase more, if needed.
After all, do you really want to pay a loss assessment out of pocket when you could have a perfectly good policy do it for you?