HOA Loss Assessment: How to Fix and Avoid Being Held Portion of the Costs (An Expert Guide)

Dec 7, 2020 | Personal Insurance

Getting your own condominium unit is a luxury. The amount you have to spend acquiring a unit, investing in your interiors, and paying your association dues is expensive. The least that you want to happen is to incur unnecessary payable while living in your condo. Unfortunately, Homeowners’ Loss Assessment is one of the most overlooked coverages in the Condo Insurance Policy. 

Failure to settle the assessed amount may lead to foreclosure of the property. This is regardless if only one unit owner missed paying. Having a loss assessment coverage will help you mitigate these out-of-pocket expenses and ensures protection to your beloved investment. 

If you are a condo owner who would like to secure yourself from these unplanned expenses, read ahead to know more! 

What is the Homeowners’ Association Loss Assessment? 

Nowadays, condo owners are most likely to see major insurance gaps on their Homeowners’ Policies due to their inadequate coverage. To bridge the gap, the insurance industry came up with special assessments to strengthen the protection offered to condo owners. The most popular one is the Loss Assessment. The Loss Assessment is a special assessment that shoulders the expenses incurred to repair the damages on your condominium’s shared areas. This is determined by your homeowners’ association. Most condo associations have a separate Master Condo Policy that covers these losses. A Master Condo Policy is a type of insurance availed by the condo association. It is responsible for the association’s general liability and coverage to property damages on the condominium’s shared area. However, if the master policy has been exhausted, all unit owners may be prompted to contribute financially. This is to cover the excess expenses regardless if you are directly responsible or not. Despite this, your condo association cannot hold you accountable for the assessment cost whenever they please. They must abide by the rules found on the association’s bylaws too. Furthermore, some states have laws in place to determine the amount that your condo association can levy. A condo association expense could become a shared responsibility. Lack of sufficient insurance coverage, excessive loss, or high deductibles on master policies is some reasons. Not all homeowners’ policies include loss assessment coverage. In fact, it is an optional add-on that you can avail on top of your condo insurance. 

In 2017, many of the condominiums along the beaches of Brevard County sustained damages after Hurricane Irma wreaked havoc. Most common areas and structures of the condo building were unsafe to use or inhabit after they found severe damages. Due to the need of repairing the structures immediately, most condo associations’ master insurance policies have been exhausted. Funds on their reserve accounts have depleted. The condo association had to replenish their reserve accounts by charging unit owners a special assessment called the loss assessment. Despite paying their association dues timely and being insured under the Condo Insurance Policy, many condo owners had to pay out of their pockets. This is because the loss assessment was not covered by their policies. They could have prevented the unplanned expense if the condo owner included a loss assessment coverage on their condo insurance policies. 

Tips on How to Avoid Being Held Portion of the Cost 

It is easy to get deluged when adding a Loss Assessment to your policy due to its dynamic rules. Here are some stress-free tips on how you can maximize your loss assessment coverage. 

  1. Make a list of building items or areas that are not covered by your Condo Association’s Master Policy. This will help you get a ballpark figure of how much loss assessment coverage you need to add on your condo insurance policy. If it is legal in your area, you may ask your condo association for this document. To prevent losses, the policy limits you choose for your loss assessment coverage should align with your homeowner association’s master policy. 
  2. Assess the risk of being exposed to Earthquakes and add a policy to cover this on your Homeowner’s Insurance. Doing so will help ensure that your loss assessment will cover this peril.
  3. Expand your covered perils on your homeowner’s policy as this could also expand your loss assessment coverage. For example, when you add sewer and water back up on your Homeowner’s Policy, your loss assessment coverage will also cover that peril.
  4. Do not hesitate to increase your loss assessment coverage limits to at least $50,000 to ensure wider protection. When you do so, do not forget to update your Homeowner’s Policy also. 
  5. Despite it has tons of benefits, utilizing your loss assessment is equivalent to filing a claim. Use it with caution and always assess first what is best for the situation. 

What does the Loss Assessment cover? 

The loss assessment coverage is ever-changing. Most insurance companies update their policy when needed by the situation. You can use the loss assessment if a shared area needs repair or an injury has occurred within the building’s property. 

Damages to Shared Areas

The most common perils that may damage your building properties are typhoons, hurricanes, and fire. Shared areas such as staircases, pools, gyms, lobbies, club houses, and other outdoor spaces are not covered by your condo insurance. This is regardless of your homeowners’ policy. You can apply for the loss assessment coverage on instances when your condo building’s common area gets damaged. Damages to shared areas are one of the common reasons why loss assessment claims are filed. Often, reconstruction costs are expensive thus, it is best to have the loss assessment handy. 

Liability assessments

This will cover physical injuries that have transpired within the building’s common property. For instance that an injured guest will hold your homeowners’ association responsible, the loss assessment can cover the assessed expenses. This happens when the assessed amount is more than their master policy coverage. There are several types of liability assessments. One of which is an animal liability.

The animal liability is an insurance you can add to your condo policy. This will cover bodily injuries or property damages your pets caused to people who are not living with you. Due to some condominiums not being pet-friendly, we recommend you to avail the animal liability insurance. Say, your fluffy friend accidentally trips your neighbor. Animal liability insurance will shoulder the expenses. 

Master Policy’s Deductible

Most homeowners’ associations avail high master policy deductibles to keep costs down. When a deductible becomes payable in a claim, it may be passed on to the unit owners. For example, a fire in your building’s shared area caused $100,000 worth of damages. If your homeowners’ master policy deductible is $30,000, your insurer will only cover $70,000 from the assessed damages. Since your homeowners’ association is responsible for the amount not covered by the insurance, they may pass that on to the unit owners. Aside from the common master policy deductibles, many insurers are now mandating the need to add higher deductible provisions to the homeowners’ policies. Take Colorado as an example. It is known to experience drastic weather changes yearly. In fact, damages brought by wind and hail continues to be the most popular reason why people file insurance claims in the state. In 2017, a hail storm wreaked havoc across Denver CO. The damages brought by the storm cost Colorado insurance companies a whopping $2.3 Billion worth of claims. It was overwhelming for most homeowners and some were unprepared. Hence, many insurers in the area are now recommending adding wind and hail deductibles to their clients’ policies. Due to the complex nature of insurance deductibles, it is best for you to contact your insurance agent in Denver CO to know more.

What is not covered by the Loss Assessment? 

Your loss assessment covers damages or perils that are outlined in your condo insurance policy. Unless you get a separate plan, it will not cover the following: 

● Costs brought by building foreclosure or demolition are not covered. 

● The loss assessment does not cover earthquakes, mudflows, floods, and sinkholes. Separate policies can be availed to cover earthquakes and floods. You may consult your trusted insurance agent to know more. 

● More often than not, the loss assessment does not cover the costs of maintaining or renovating your condo building. 

Do I need a Loss Assessment Coverage? 

Definitely! If your condominium is part of a homeowners’ association, you are required to pay association dues. They will allocate these dues to maintain the common areas and amenities of your building’s property. There are instances wherein these shared areas may suffer massive damage or loss. As a member of the association, you will be asked to contribute to the repair or reconstruction costs. These costs may rise up to thousands of dollars. To get a clearer picture, below are some scenarios: 

  • A friend visits you and decides to swim at the clubhouse pool. During the stay, your friend slipped and was injured severely. Your friend sued the building claiming that the pool structure was not done well. During the investigation, the jury found that the pool was not slip-proof. Hence, your friend won a judgment of $1,000,000. According to the master policy, your Homeowners Association carries only $300,000 of insurance. Since you own a portion of the common area, your homeowner’s association may ask you to shoulder the excess amount. In an 80-unit building, each unit owner will pay off $8750 to cover the damages. 
  • An 80-unit building was struck by a hurricane and all the common areas were badly hit. They found out during the assessment that it costs $500,000 to repair the common areas. Assuming that the association’s master policy can only cover up to $300,000, they will have to divide the difference among its unit owners. Each of you will be assessed $2500. It hurts to pay $2500 or $8750 out of your pocket for something you weren’t directly at fault with. When this happens, the loss assessment coverage will protect you from being financially responsible thus preventing unplanned expenses on your part. 

How to Add Loss Assessment to your Homeowners’ Policy 

To leverage the Loss Assessment coverage, one must have a Condo Homeowners’ Policy. Some Condo Homeowners’ Policies include a standard Loss Assessment coverage of at least $1000 with a $250 deductible on their plans. This is the most that your insurance company will shoulder regardless of the number of assessments charged to it. Due to the complexity and exorbitant cost of reconstructing damages in condominiums, the standard coverage is often inadequate. Instead of being overwhelmed with the unnecessary expenses when perils occur, I recommend sizing up your standard Loss Assessment. For only an additional $10 to $25 a year, you can get up to $100,000 or more loss assessment insurance coverage. 

When tweaking your loss assessment coverage, here are a few things worth noting: 

● Your insurance company would shoulder the assessment cost if the peril causing the damage is covered by your condo policy. Say, the condo’s clubhouse burned to ashes. If the fire is among your covered perils, your insurer will cover the assessment. If damages caused by a fire is not a part of your covered perils, then your insurer will not bear the expenses. 

● In an event that the same peril damaged multiple areas of your building, it will be consolidated to streamline your insurance claim. Hence, if the fire damaged your clubhouse, gym, and staircases, it will be grouped together and treated as one claim. 

● Your loss assessment can only be leveraged during the policy period. For example, there was a hailstorm in July, and Company A was still your insurance provider. In August, you decided to transfer to Company B. You received the damage assessment in September. That being said, Company B’s loss assessment will be utilized as it is your insurer at the time of the assessment’s release. 

Call or message us today if you want to add an endorsement to increase your loss assessment coverage. As the best insurance agency in Denver, Colorado will review your condo association’s bylaws to ensure you get the best plan that you need.