Insurance May Not Cover Damages to Homeowners
Association Common Spaces. This is Where Loss Assessment
Coverage Comes In
Article Courtesy of The Next Door Advisor
By Elizabeth Rivelli
June 13, 2021
Whether you live in a single-family house, a condo,
or an apartment, having property insurance is important to protect your
personal items and your liabilities, among other things. But when you
belong to a homeowners association (HOA), you’re responsible for more
than just your own property — that’s why you should also consider
getting loss assessment coverage.
As of 2020, more than 53% of the owner-occupied dwellings in the United
States are governed by an HOA, according to Homeowner Associations USA.
Being part of an HOA means taking collective responsibility for certain
claims, which the HOA can charge you for. HOAs don’t usually require
homeowners to carry loss assessment coverage, but it can help you save
some money in the event of a qualifying claim.
What Is Loss Assessment Coverage?
If your home or condo is part of an HOA, the owners are collectively
responsible for damage that occurs to common spaces, as well as certain
liability claims. If the HOA master policy does not have enough coverage
to pay for the claim in full, it usually falls onto the owners to pay
the difference, in what’s called an assessment.
If you live in a community with an HOA, get loss assessment coverage to
help cover your portion of damage, deductible, and liability claims.
“Loss assessment coverage would be used if the association assesses the
members of the community for a portion of the damages not covered by the
master policy,” says Matt Woodford, president of North Carolina-based
insurance broker, Independent Property and Casualty Group. Without loss
assessment insurance, you would be responsible for paying the assessment
How Does it Work?
When you belong to an HOA, part of the annual dues goes towards the HOA
master policy, which is the first line of defense when a covered peril
or event occurs. If the master policy doesn’t have enough coverage and
the owners get assessed, you can use loss assessment insurance to pay
for your portion of the assessment.
When you receive the official assessment notice, you can contact your
insurance company and start the claim process. Loss assessment coverage
can be used retroactively, meaning the time and date of the claim
doesn’t matter, as long as your policy is active when you get notified.
“Another important aspect of loss assessment is that the claim occurs
when the member is notified they are being assessed, not when the loss
initially occurred. The assessment can come three years after a loss,
and as long as the policyholder has the coverage on their policy, they
can use it,” says Peter Conte, account executive at Honig Conte Porrino
Insurance Agency, an insurance broker in the New York City area.
How Much Coverage Do I Need?
Loss assessment insurance will help pay for third-party liability and
property damage claims, as well as medical expenses if a resident or
guest gets injured in a common space. Before you choose a coverage
limit, it’s also helpful to know what types of assessments you might
Damage assessment: A damage assessment occurs when there is
damage to a common space that all owners use and have access to, like a
clubhouse or tennis courts. If the HOA’s master policy does not cover
the full amount, the amount owed is usually divided equally among the
Liability assessment: A liability assessment occurs when someone
gets injured in a public area of the association. The HOA’s master
policy typically includes high liability limits for these situations. If
the claim exceeds the master policy’s limit, the loss assessment
coverage portion of your home or condo insurance policy should cover
this assessment for you.
Deductible assessment: A deductible assessment occurs when damage
occurs in the community and the master policy’s deductible is less than
the cost of repairs. In this case, the association can require the
owners to each pay a small portion of the deductible, even if the claim
is covered by the master policy.
So, how much coverage should you get? Well, the amount of loss
assessment coverage you need is different for everyone. “It depends on
your risk appetite, as well as the type of building you live in, and the
types of loss that can occur,” adds Conte.
To determine how much loss assessment insurance you should have, start
by checking your HOA’s bylaws. There may be a recommended guideline.
Additionally, look at the HOA’s master policy limits. If the policy
already has a high coverage limit, you might be able to get away with
Also look to see how much loss assessment coverage is built into your
home or condo insurance policy. Most policies offer some protection, but
not much. You can call your provider and ask these questions to see if
additional coverage is needed.
Keep in mind that loss assessment coverage doesn’t help pay for damages
that occur within your home or unit, nor does it cover guest injuries
that happen in your residence. Make sure you have adequate homeowners or
condo insurance coverage to protect you in those situations.
How to Sign Up for Loss Assessment Coverage
Getting loss assessment coverage is a straightforward process. You can
purchase coverage through your home or condo insurance provider. Most
providers sell loss assessment coverage as an endorsement, which can be
added to your existing policy for an extra fee.
Start by contacting your provider and explain your coverage needs. If
your policy already has some loss assessment coverage built in, it might
be as easy as increasing the policy limit. Your provider will let you
know how much your premium will increase, and your coverage will start
once you make the first payment.
Why is Loss Assessment Coverage Important?
Although loss assessment coverage is not required, it’s an important
policy for any HOA member.
“Loss assessment coverage helps hedge against out-of-pocket expenses in
the event of a loss that is assessed,” says Woodford. Because loss
assessments are often unexpected, loss assessment insurance prevents you
from dipping into your savings account to cover your share of damages or
lawsuits that occur within the community.
“In extreme cases, if you are unable to pay your portion of the loss
assessment, it could result in legal action,” Woodford adds. When you
purchase a home or condo within an HOA, you typically sign a contract
that says you agree to follow certain rules, one of which is paying for
If you are unable to pay for an assessment, it’s possible that the HOA
could take you to court and attempt to collect their portion of the
money. If that were to happen, you would be financially responsible for
your legal fees and lawyer costs, in addition to the assessment funds