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What is Loss Assessment Coverage?
Did you know that you could be found financially liable if something happens in your condo’s common area? For many people, that could be news and also an important wake-up call. Thankfully, many insurers offer loss assessment coverage to cover you if your condo’s insurance policy comes up short. Understanding the ins and outs of this type of insurance and how it relates to an HO-6 policy is critical to protecting your investment and hard-earned money.
What is loss assessment?
When you purchase a condo, you become part of a condo association responsible for the building and all the common areas. Generally, part of your condo dues pays for an insurance policy that covers the costs if something happens to the building or in a common area.
For example, let’s say that your building has a $100,000 policy for damage to the pool. Let’s also say that something happens to the pool, and there is $150,000 worth of damage. The condo association will submit a claim that will cover $100,000 of the damage, but that leaves $50,000 that is split up among the condo owners.
But even if the cost of the damage is under the policy limit, you may still owe money. Remember, even the best insurance policies have a deductible, and in these situations, it’s the condo owners that have to pay. Yes, you would be required to come out of pocket for these costs unless you have loss assessment coverage.
Loss assessment of an HO-6 insurance policy
An HO-6 policy is the basic form of homeowners insurance you can get for your condo. Generally, HO-6 coverage includes some form of property and liability coverage. With most plans, this covers the things inside of your condo like flooring, cabinets, fixtures, drywall, doors and more.
Within your HO-6, you should have loss assessment coverage. Loss assessment coverage is a component of your insurance that covers the outside of your building, as well as the common areas that are shared with other owners. When this is included in HO-6 policies, the coverage is usually minimal. Many policies only have $1,000 of additional coverage, which may or may not be adequate.
What does loss assessment cover?
Bear in mind that each loss assessment coverage policy is different. You’ll want to check your policy to see what you do or don’t have coverage for. That being said, most policies cover the same general areas.
- Damage to the exterior of the building: This would cover damage to the outside of the building from natural disasters like hurricanes, wind, tornadoes, fire, etc.
- Damage to common areas inside and outside the building: Generally, the policy will cover any damage to the common areas inside and outside the building, like elevators, carpeting, pools, hot tubs, etc.
- Liability coverage: If someone gets hurt in the common areas, there may be a liability claim. If the master policy comes up short for damages or legal fees, this is often covered by loss assessment.
- Deductibles on the master policy: The master policy is the coverage your condo association has to cover the property. When a claim is made against the building, you may be responsible for splitting the costs of the deductible.
What doesn’t it cover?
The most important takeaway here is that each insurer will have different areas and coverage levels for loss assessment. Additionally, the amount of coverage you need will vary based on what your condo association’s master policy has. If the limits are extremely high on the master policy, the need for additional coverage may go down. The same is true when the master policy has low coverage limits.
Should I get loss assessment coverage?
For the most part, your HO-6 policy should include at least some loss assessment coverage. If it doesn’t, you may want to inquire about adding some. Additionally, you’ll need to look at how much you’re covered for compared to the master policy. If you think the master policy limits are high enough that even the most extreme incidents wouldn’t cost more, you might be okay with minimal coverage.
How much loss assessment do I need?
The answer to this question starts by understanding the difference between your coverage and the coverage in the master policy. The coverage in your HO-6 policy covers the things that happen inside of your condo. When things happen outside of your condo to the building or common areas, it’s covered by your condo association’s master policy.
However, if that master policy comes up short, the remaining costs are split among the owners. Loss assessment coverage covers these instances. Knowing exactly how much coverage you need involves looking at your condo’s master policy, how many owners there are and what you think incidents could cost.
If the master policy coverage is high and there are a lot of owners (more people to split the costs), you might be okay with lower coverage. If there are fewer owners and the coverage limits are low, you might want some additional coverage in case something unexpected happens.
Loss of assessments coverage and deductibles
Your condo’s master policy may cover a lot of the expenses from a claim. However, there may still be a rather large deductible every time a claim is made. Some loss of assessment coverage policies can cover your share of the deductible anytime this happens. While this feels good when you don’t pay anything on a claim, it will raise your premiums extensively. It’s up to you to balance the amount you want to pay, your assessment of the risk and what your policy covers.