Loss Assessment on Condo Insurance (HO6)
Condo insurance can be extremely confusing, especially to a new condo owner. While both condo insurance and homeowners insurance protect you from losses to your personal property within your dwelling, only condo insurance provides loss assessment coverage. Loss assessment coverage was built for the condo owner and is one of the essential types of coverage you need. It also happens to be the place where most condo owners are underinsured.
A decade ago, only about 20% of condo owners were insured. That number has increased to about 50% in 2020, but that doesn’t take into account the many underinsured condo owners. The following information will prepare you to get the best coverage possible when you talk to an insurance agent.
What is Loss Assessment Coverage?
Your condo insurance HO6 policy typically covers your personal belongings and damages within the walls of your unit, up to specific coverage A limit. The base HO6 policy does not cover costs to the structure or injuries and damages in common areas. These losses are covered by the condo association or HOA (homeowners association) insurance policy.
However, the HOA policy will likely have gaps in coverage and in a loss event, some portion of the repair cost will be assessed to the individual unit owners. Loss assessment coverage kicks in for these additional costs that your condo association or HOA may allocate to you.
Common Loss Assessment Scenarios
The most common costs you might bear as an individual condo owner are paying for your share of the deductible on the associations master policy. Deductibles are often passed on to the unit owners and can be over $25,000, divided among the owners. Unfortunately, most loss assessment coverage on an HO6 form only covers up to $1,000 of deductibles unless you specifically request additional coverage.
Here are some more situations in which you might need loss assessment coverage:
- If there is significant weather damage to the outside of the building, the costs exceeding the HOA insurance policy will be passed on to the condo owners.
- If someone is injured in a common area, the HOA liability coverage may not be enough to cover the awarded damages.
- You may be responsible for covering part of the cost of damages to shared property in common areas.
As you can see, there are several situations in which the condo or homeowners association can assess losses, passing the cost onto you.
An Important Caveat
A critical point on loss assessment coverage is that it only covers you under specific, stated situations. If your losses are due to any other cause, they will not be covered by the policy. It is essential to look over your HOA master policy documents to make sure of what coverage you need to purchase to fill the gaps.
HO6 policies with loss assessment coverage are very specific policies. They may have excluded perils, and they may have limited coverage for other named perils. It is crucial to go over everything in your plan with your agent to make sure that you have the coverage you need. Providing your agent with a copy of the HOA policy or declaration could assist you in getting the appropriate coverage.
Even if you have loss assessment coverage, you may be underinsured. Perils that you should make sure are covered under your loss assessment policy include:
- Natural disaster
- Common area injuries
- Water leaks and damages
You also want to make sure that your deductibles will be met, at least up to $25,000. Keep in mind that some situations may arise in which you will be assessed upwards of $30,000 by the HOA, and if that happens, you need to have enough coverage available.
Getting the Best Loss Assessment Coverage
The best way to get good loss assessment coverage is to have your insurance agent look at the homeowner’s association declaration statement, which will go over what their insurance covers and what their deductibles are. From this document, the agent can help you determine how much coverage you need.
It is also essential to shop around to make sure that you are getting the best rate with the best value. Sometimes the cheapest coverage is not the best coverage. Make sure that you are not one of the underinsured that find themselves in financial trouble without warning. Ask lots of questions of your insurance agent when setting up these policies so that you know you are covered no matter what happens.
I hope this helps!
At your service,