If you own a home in a subdivision or other planned community that has a homeowner’s association (HOA), some insurance protections fall under the HOA policy
and others under your own homeowner’s policy. There are some gray areas, however, when it comes to damages or losses within common areas of your home community. Loss assessment coverage on a homeowner’s policy helps to fill those gaps and potentially save you from financial disaster.
Read this guide compiled by car insurance broker Jerry
to learn more. What is loss assessment coverage on a homeowner’s policy?
Homeowners in planned communities and condos often belong to an HOA that takes care of common spaces like a clubhouse, pool, or playground. HOAs have their own insurance that is separate from the insurance homeowners have for their own dwellings within the community. This insurance procured under the HOA is known as a master policy.
An HOA master policy
is paid for out of its members dues. Many of the disasters that may befall a common area would be completely covered by this master policy. A master policy also covers liability issues to pay for litigation associated with property damage or bodily harm occurring in common spaces. There are, however, limits to the coverage on the HOA insurance. This is where loss assessment coverage comes into play.
If the costs associated with damage, loss, or liability within common spaces in the community exceed the HOA master policy limits, the homeowners are responsible for a share of the excess expenses. Homeowners who have added loss assessment coverage on a homeowner’s policy then have financial help from this additional insurance. Some situations where loss assessment coverage applies are:
Damage to shared buildings, like clubhouses
Damage to shared property, like playgrounds or sidewalks
Medical expenses due to injury within common areas
Property damage occurring within common areas
Litigation expenses resulting from damage or bodily injury in shared spaces
In the event that there are costs following one of these situations that exceed the limit of the HOA master policy, a homeowner’s loss assessment coverage picks up the slack.
How much loss assessment coverage on a homeowner’s policy is needed?
There are also limits to loss assessment coverage on a homeowner’s policy. So, it's important to assess how much of this kind of additional protection is needed. To calculate the needed amount, review the bylaws of your community, as there may be a set amount of loss assessment coverage required. Also, look at the limits of the HOA master policy and the breadth of protection in place.
While a standard homeowner’s policy includes about $1,000 of loss assessment coverage, that would not go far if the HOA is hit with a $1,000,000 bodily injury claim in a community of 25 households. If the HOA master policy has a limit of $500,000, then the other $500,000 becomes the community’s responsibility in equal share by household. So, each household in this case would owe $20,000 (well, $19,000 after the standard $1,000 of loss assessment coverage is applied).
Unfortunately, there is no set formula to calculate the amount of loss assessment coverage you need. There are, however, some basic principles to keep in mind.
Less loss assessment coverage on a homeowner’s policy is needed with high HOA master policy limits, and vice versa. Also, a more upscale community with high-value common features needs more loss assessment coverage due to the greater risk of high-dollar damage. A homeowners insurance agent can discuss options and help make an appropriate decision about loss assessment coverage limits.
How much does loss assessment coverage cost?
Loss assessment coverage is a fairly cheap add-on for your policy. Usually, you can get loss assessment coverage for as cheap as $10 to $30 a year.
Even with its inexpensive cost, you can easily get coverage limits of $100,000.
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