Nearly 25% of American homeowners live in some sort of managed community such as a homeowner association, condo association, or cooperative. While there are certainly many benefits of living in a managed community, there are a few pitfalls to be aware of. One of those pitfalls is the right of the association to assess the community for unforeseen or uncovered expenses. Loss assessment coverage, which is part of most homeowners insurance policies, can protect you from some types of assessments.
There are many reasons an HOA may need to charge an assessment to the members of the community. For example, the community may have incurred higher than expected repair expenses. Or, perhaps some members of the community have not been paying association fees, creating a budget shortfall. Another scenario that may cause an assessment is a liability or property claim that is not covered by the community insurance. This last scenario, subject to policy conditions, is when loss assessment coverage becomes invaluable.
When selecting coverage for commonly owned property, some community associations may select a high deductible to lower the overall premium. A deductible of $10,000 to $100,000 is not uncommon, depending on the size of the association. When a damage to the association property occurs, the insurance carrier will pay the claim less that deductible. However, to make the community or affected property owners whole, someone must pay the deductible. This is typically handled in one of two ways: an assessment to the property owners directly affected, or an assessment to the entire community.
Liability claims can also create a need for a community-wide assessment. Consider the following scenario: A condominium association has a community pool that is used by unit owners and invited guests. A child swimming in the pool drowns and litigation ensues. It is discovered that the swimming pool did not have proper depth markings and warning signs and the community is held liable for the death. The judgment against the association exceeds the limit of liability insurance purchased by the HOA. The difference is assessed to each member of the community.
Loss assessment coverage can protect you from these scenarios. A basic limit, usually $1,000, is included on nearly every homeowner and condo insurance policy. At Safeguard Insurance, we recommend you consider purchasing a higher limit, usually $5,000 to $10,000 or higher. It is important that you carefully read and understand the governing documents of your community association to understand who is responsible for payment of deductibles and what type of insurance is provided.
When shopping for homeowner or condo unit owner insurance, contact the professionals at Safeguard Insurance to understand your options and learn more about how loss assessment coverage can protect you.