When you own a condo or a townhome in an HOA, you have the benefit of accessing common/shared areas throughout your community. The benefits of accessing these areas will likely add to the value of your individual property. Keep in mind, however, that as a member of the community, you are also likely to be held financially responsible for a portion of maintaining the upkeep in these spaces.
Let’s assume you have an insurance policy for your individual unit. A majority of your personal coverage will look similar to almost any homeowner in any type of residence, whether it be a condo, townhome, or single-family home. Under typical circumstances, this coverage will cover your unit and the contents inside your unit. It is also important to keep in mind, however, that since you live in a community with common/shared areas that you are also responsible for, you may want to explore your options to protect anything outside your individual unit.
Of course, your HOA will be required to have a master policy that will also cover a variety of damages throughout your community. Despite this, your HOA also reserves the right to assess you a portion of any bills associated with losses in your community at any time. If your HOA chooses to enact this right, it is commonly referred to as a Loss Assessment.
Loss Assessment Coverage
If you’re hearing this for the first time, I’m sorry to be the one to break the bad news… BUT! I also have some positive news for you! You can obtain coverage in your personal policy that covers these circumstances. This protection is called Loss Assessment Coverage. This Loss Assessment Coverage is a part of an HO-6 Policy that is designed to coordinate coverage with your community’s master policy. It goes into effect as protection when your building or common/shared areas are involved in a claim exercised by the master policy.
At this point, you may be saying to yourself, “That sounds great, but how much does it cost and what exactly does it cover?” Surprisingly, Loss Assessment Coverage is extremely affordable, and it covers a multitude of damages. First, let’s determine the cost. On average, the cost to add loss assessment coverage to your policy can be as low $5-$10/month.
You will be responsible for a deductible if you choose to enact your coverage in claim, and you’ll need to determine the dollar amount you want as coverage; both of which can vary. In the long run, while you may spend $500-$700 (including your deductible) over the course of multiple years, you will be covered on special assessments from your HOA that could cost up to $10,000 – $15,000 if you chose don’t have coverage.
How does Loss Assessment Coverage Work?
Now, let’s talk about what Loss Assessment Coverage can protect and how it works. Since we’re a roofing company, we’ll start with your roofs. Let’s say a storm occurs in your area and wind/hail damages the roofs and siding throughout your community. As a result, your community’s Board of Directors receives an inspection report that merits action, and votes to file an insurance claim with the carrier of the association’s master policy.
The cost of the full replacement ends up being $1,000,000 and your master policy states the wind/hail deductible is 2% of the assessed value of your community, which is $17,500,000. The 2% deductible of $17,500,000 calculates out to being $350,000. There you have it. Your community is responsible for the first $350,000 and the insurance carrier is responsible for the remaining balance of $650,000.
There are a total of 50 units in your community, and the HOA determines the special assessment for each unit to cover the deductible is $350,000 / 50 = $7,500. The vote passes to assess each homeowner this amount and sends you a bill for this amount.
After receiving the bill, you reach out to your insurance provider and learn that Exterior Damages to the building due to an Act of God, Natural Disaster, or similar event, as well as Deductibles on the HOA’s Master Policy are both covered by your loss assessment coverage. Instead of writing a check to the HOA for $7,500, you pay the $500 deductible to exercise your personal loss assessment coverage in your HO-6 policy, and your insurance carrier sends a check for $7,500 that covers your portion of the assessment.
What does Loss Assessment Cover?
This Loss Assessment coverage is not only limited to wind/hailstorms, and can cover a multitude of other events that include damages caused by but not limited to fires, explosions, vandalism, robbery, smoke, short-circuiting, or freezing. While the type of coverage can be vast, keep in mind, that in order to utilize your coverage you will almost certainly need to provide evidence of a verified loss.
Every policy is different. To eliminate any confusion, it is best to consult the depth and amount of coverage your insurance is willing to provide as a result of a loss assessment. For the sake of our conversation, we strongly recommend Loss Assessment Coverage in an HO-6 policy to ensure homeowners are protected when their community votes to receive new roofs via insurance claim.