What Is Loss Assessment on a Condo Policy?

Condominium ownership involves a master insurance policy for common areas and the building’s exterior, and an individual HO6 policy for the unit owner’s interior space and personal belongings. Despite these, condo owners may face “loss assessments”—charges levied by the homeowners association (HOA) to cover costs not fully addressed by the master policy or its reserves. Understanding these assessments and HO6 policy protection is crucial.

Defining Loss Assessments

A loss assessment is a charge levied by a condominium or homeowners association on unit owners. These charges typically cover costs exceeding the association’s master insurance policy limits, falling below its deductible, or when reserve funds are insufficient. They often arise from significant damage to shared property. For example, if a fire or natural disaster damages common areas like the roof or lobby, and repair costs surpass the master policy’s coverage, the difference may be assessed to unit owners.

Loss assessments also cover the master policy’s deductible, which can be high ($10,000 to $50,000 or more), especially in disaster-prone areas. If a covered event occurs, the association might assess unit owners a portion of this deductible. Additionally, assessments can address liability judgments against the association that exceed its master liability policy limits, such as a lawsuit from an injury in a common area. These assessments apply to shared property or association liabilities, not damage within an individual unit.

Your Condo Policy and Loss Assessment Coverage

An individual HO6 insurance policy can cover unexpected loss assessments. This coverage is usually included in the HO6 policy or can be added as an endorsement. It protects unit owners when the condominium association’s master insurance is insufficient for common area damages or liability claims.

HO6 policies typically cover loss assessments for common property damage caused by perils like fire or windstorm, aligning with the policy’s own covered events. Coverage also extends to assessments for the master policy’s deductible or for liability judgments against the association. While a basic HO6 policy might offer a minimal amount, such as $1,000, policyholders can generally increase this limit to $25,000 or $50,000, depending on the insurer.

Common Exclusions and Limitations

Loss assessment coverage has specific exclusions and limitations. Assessments for routine maintenance, upgrades, or improvements not resulting from an insured loss are typically not covered. For example, a special assessment for repainting the building’s exterior or upgrading gym equipment would generally not be covered.

Coverage excludes assessments for damage from perils not covered under the individual’s HO6 policy, such as flood or earthquake, unless specific endorsements are added. Assessments due to the association’s financial mismanagement or a shortfall in reserve funds for non-covered events are usually not included. Assessments below the unit owner’s own policy deductible will also not be covered. Coverage is typically determined by the assessment date, not the damage date.

Practical Considerations for Coverage

Condo owners should determine an appropriate coverage limit for loss assessments. Reviewing the condo association’s master insurance policy and bylaws is key. Understanding the master policy’s deductible and the number of units helps calculate potential individual assessment amounts. Experts often suggest at least $50,000 in coverage, as increasing this limit is typically inexpensive.

Upon receiving a loss assessment notice from the HOA, unit owners should promptly notify their HO6 insurer to initiate a claim. The individual policy deductible will apply. Consulting an insurance professional is advisable to evaluate specific needs and ensure adequate protection based on the condo association’s master policy and the individual unit’s exposure.