Licensed Realtor with 10+ years in personal finance content
Contributor to Nasdaq and USA Today
Daria is a licensed Realtor and resort property manager specializing in personal finance, real estate, and insurance topics. In her spare time, she practices photography.
Background working with banks and insurance companies
Sarah enjoys helping people find smarter ways to spend their money. She covers auto financing, banking, credit cards, credit health, insurance, and personal loans.
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Loss assessment coverage is an endorsement to your condo or homeowners insurance policy. It reimburses you if you live in a community with a condo or homeowners association that charges a special assessment to pay for damage to a common area or expenses related to an accident that occurs in a common area.[1]
This optional coverage can save you from having to pay out of pocket for your share of the repairs. But it only comes into play when the condo association’s (COA) or homeowners association’s (HOA) master insurance policy covers the damage or accident.
What is a loss assessment?
When you live in a condo or planned community with a homeowners association, you own your home as well as interest in common areas shared by the building or community. With that interest comes financial responsibility for maintenance, repairs, and improvements.
Typically, your COA or HOA carries a type of insurance policy called a master policy that protects your interest in the common areas. But master policies often have high deductibles, and the coverage they provide is limited. In the event of a covered event that causes property damage or personal injury, the association might impose a special assessment to raise money for any costs the master policy doesn’t pay.
This special assessment is money you and the other association members pay on top of your regular assessment.[2]
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How loss assessment coverage works
Loss assessment coverage reimburses your special assessment only if your association’s master insurance policy covers the damage or injury. So it won’t help you with a special assessment for rebuilding an aging clubhouse or adding a playground.
But it might reimburse you for a special assessment levied for the following types of incidents:
Fire damage
If a fire destroys the lobby of your condo building, for instance, the COA/HOA’s master policy would cover costs above the deductible amount, up to certain limits. A special assessment could cover the rest.
Wind damage
The COA/HOA’s master policy would cover roof damage from a covered windstorm. But the association might need a special assessment to raise funds to cover the deductible and any damages beyond the master policy limits.
Bodily injury
If a swingset on a community playground collapses and injures a child, association members might have to pay a special assessment to cover medical and legal costs that the COA/HOA’s master policy doesn’t cover.
Loss assessment example
Say you live in a condo building that has 20 identical units, and a fire results in $150,000 worth of lobby damage. The COA/HOA’s master policy has a $10,000 deductible and a $100,000 coverage limit, leaving homeowners to cover $60,000.
In this case, the association board (or manager) would divide that $60,000 between the 20 units and impose a special assessment of $3,000 per unit. If you have a loss coverage endorsement on your condo or homeowners insurance, you’d likely be able to get a reimbursement for the $3,000 from your insurer instead of paying out of pocket.
Does condo insurance cover assessments?
Standard condo insurance doesn’t cover assessments. Those assessments are essentially membership fees that provide the funds needed to manage the association, insure the building and other common areas, and cover the cost of maintenance, repairs, and improvements.
Condo insurance does cover the cost of damages and injuries resulting from covered perils — like fire, theft, wind, falling objects, and accidents that cause injury or property damage. But your insurance might cover only a small amount of a special assessment related to an insurance claim. For instance, The Hartford only covers up to $1,000.
Who needs loss assessment coverage
Anyone who owns a condo, townhome, or home in a COA- or HOA-governed community can benefit from loss assessment coverage. Your current condo or homeowners insurance might provide a small amount of coverage — typically up to $1,000. But special assessments can cost much more, potentially leaving you on the hook for thousands in out-of-pocket costs.
Consider the following to determine whether you should purchase loss assessment coverage:
Association reserves: COAs and HOAs maintain reserves to cover anticipated maintenance and repairs. Associations short on reserves are more likely to need a special assessment to pay for unexpected damage or liabilities.
Governing documents: The declaration and bylaws might have rules pertaining to when the association can impose a special assessment and the maximum amount it can impose.
Master policy: What are your association coverage limits, exclusions, and deductibles? Your COA/HOA’s master policy limits can affect your risk of getting a special assessment.
Common areas: The more buildings and expensive or dangerous amenities your community has, like pools, the more potential liability and the higher the risk of facing a special assessment.
Condition of common areas: Deferred maintenance and aging amenities are signs that your association is going to have to make significant outlays in the not-too-distant future — money that won’t be available to cover unreimbursed expenses from an insurance claim.
Your financial situation: If you’re not sure you’ll be able to afford a special assessment out of pocket, you should strongly consider adding loss assessment coverage.
How much loss assessment coverage do you need?
The optimal amount of coverage varies from one person to the next. After reviewing your association’s financial documents, contact your insurance agent to discuss the optimum coverage amount for your situation. Coverage amounts typically range from $10,000 to $100,000.
How to buy loss assessment coverage
Follow the steps below to buy loss assessment coverage:
Evaluate your need for loss assessment coverage. Review your community’s governing documents to find out when and how much special assessment you could be responsible for paying. Also check your condo or homeowners insurance policy and your association’s master policy to see how much coverage they include, if any. Look for exclusions, coverage limits, and deductibles that might affect your coverage purchase decision.
Contact your condo or homeowners insurance company. Review your policy and the master policy with your insurance agent, and determine how much loss assessment coverage you need.
Compare rate quotes. Before you make a policy change, it’s a good idea to re-evaluate your current coverage and do some comparison shopping for coverages and rates from a couple of competing companies.
Ask your agent to add the endorsement. If you’re keeping your current insurance, ask your agent to add the loss assessment coverage to your current policy. If you’re changing insurers, ask to have the endorsement added to the new policy.
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Cost of loss assessment insurance
Annual premiums range from about $10–$75, depending on the insurer and the coverage amount. That means $10,000 in coverage could be as low as $10 per year, and $100,000 in coverage might cost $75 per year.
What happens if you don’t have enough loss assessment coverage?
With no or too little loss assessment coverage, you could be forced to pay out of pocket if your community imposes a special assessment because of damage or liability from a covered emergency, such as a natural disaster.
Failure to pay a special assessment can have serious consequences. The specific consequences for your community depend on what the governing documents allow. But generally speaking, they might include fines, restrictions on your use of common areas, and a lien on your property.
Loss assessment coverage FAQs
Loss assessment coverage adds to your condo or homeowners insurance premiums, but it can save you money in the long run. Learn more about whether this coverage makes sense for you.
What is a loss assessment on an insurance policy?
Loss assessment coverage is an optional endorsement on your condo or homeowners insurance policy. It covers the cost of a special assessment levied to make up for any gaps between the association’s insurance coverage and the actual cost of damages or liabilities from a covered emergency.
Is loss assessment coverage worth it?
Loss assessment coverage is worth having if you have a condo, a townhome, or a home in a planned community governed by a COA or HOA. It’s inexpensive, and it can potentially save you thousands of dollars if your association levies a special assessment.
Is loss assessment the same as a deductible?
No, but they can be related. A deductible is the amount you or your association is responsible for paying on an insurance claim. Loss assessment refers to a special assessment levied to collect unreimbursed costs associated with a claim on the COA/HOA’s master insurance policy, which may include the deductible.[3]
What does loss-of-use insurance cover?
Loss-of-use insurance, also known as additional living expenses coverage, pays certain living expenses if you’re displaced from your home because of damage from a covered emergency.
Does loss assessment coverage come standard in homeowners insurance policies?
Standard homeowners insurance policies usually have a small amount of loss assessment coverage — $1,000 is typical.
Daria Uhlig is a freelance writer and editor with over a decade of experience creating personal finance content. Her work appears on USA Today, Nasdaq, MSN, Yahoo Finance, Fox Business, GOBankingRates and AOL. As a licensed Realtor and resort property manager, she specializes in real estate topics, including landlord, homeowners and renters insurance. In her spare time, Daria can be found photographing people and places on Maryland's Eastern Shore. Connect with her on LinkedIn.
Background working with banks and insurance companies
Sarah enjoys helping people find smarter ways to spend their money. She covers auto financing, banking, credit cards, credit health, insurance, and personal loans.
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