If you are a home owner belonging to a homeowners association or condo association, you most likely do not have enough of an important optional insurance coverage on your home insurance or condo insurance policy, called loss assessments coverage, which can cost you tens of thousands of dollars, if not more.

Here is what could happen:

A visitor to your condo complex slips on your stairs or walkway, or in a common area, like a green way, club house, or playground, controlled by your home owners association. The visitor’s injuries from the fall are serious. The visitor sues your condo/home association, and the visitor is awarded a 1.2 million legal settlement.

Your association’s insurance policy has a one million dollar limit, leaving the association to pay the remaining $200,000. Per the association by-laws, the association assesses each home owner, in this case 20 owners, an equal portion of the amount owed due to the lawsuit. As an owner, bound by the rules of your association, you must pay a $10,000 special assessment.

Many condo insurance policies will cover this assessment only up to $1,000, and if you have a single family home, your homeowners insurance may not cover it at all. How much would you have to pay out of your own pocket if the injured visitor was awarded  5 million dollars? You might have to file bankruptcy.

Usually, you can get additional loss assessment coverage up to 50,000. Some insurance companies may offer as much as $100,000. Purchasing this extra coverage is inexpensive, and can cost less than $20 more a year.

I know from my experience working in the insurance industry, many agents or insurance companies do not discuss the importance of having enough loss assessments coverage, when selling you a condo insurance policy. They won’t include anything more than the basic $1,000 amount, if it is automatically included in the basic policy. Some insurance companies fail to do this because they do not offer increased dollar limits of loss assessment coverage.

It is even worse for single family home owners belonging to homeowners associations, where few agents will ask you if you are a member of a homeowners association. The need for loss assessment coverage is often ignored by insurance companies & agents, and  customers don’t know to ask about it.

As an insurance buyer, it is up to you to educate yourself on what insurance coverage you need. Some insurance agents are very good with helping you decide on insurance coverage, but even good insurance agents sometimes let important coverage slip through the cracks.

Loss assessments coverage varies among insurance companies, so be sure to have agents explain the difference as you shop for the insurance coverage you need.

Loss assessments coverage does not cover all special assessments a condo or home association may assess you. Particularly, condo associations will have special assessments to pay for unplanned repairs & maintenance due to wear & tear, or construction defects. These things are not covered by loss assessments coverage.

For a loss assessment to be covered, the loss must be something covered under your individual home or condo insurance policy, and the assessment must be assessed to all owners.

For example, if your association owns a clubhouse, and the clubhouse burns to the ground. Fire is covered under your individual policy, so a loss assessment connected to the fire burning down the clubhouse will be covered.

However, if the clubhouse is leveled by an earthquake, and you don’t have additional earthquake coverage on your individual insurance policy, a loss assessment would not be covered.

Loss assessments coverage usually limits assessments due to your association insurance policy deductible, which can be very large, so you want to know what your share of the deductible will be, and how much coverage your loss assessment coverage provides.

You want to make sure lawsuits for bodily injury & property damage to others is covered by your loss assessments coverage, as described in the example used in the beginning of this blog post.

Some insurance companies offer broader coverage, and will extend coverage to loss assessments due to negligence or acts of the board of directors in conducting their duties, libel, slander, wrongful eviction, and other causes.

The need for having loss assessment coverage does not come up frequently, but if it does, it can cost you a lot of money by not having the proper amount of coverage.

Because most people never need it, many people, and unfortunately, a lot of insurance agents, don’t realize how much it costs to not have it, in the unlikely event they need it.

For a few dollars more a year, don’t take the chance you won’t need it. It’s easy to think you will never need it, and save a few bucks. That’s why many people are out tens of thousands of dollars, if not more, when something that won’t happen, happens to them.

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