What is Loss Assessment Insurance and Do You Need It?

Scenario:  You purchased a condominium in a multi-story building on the coast to use as a vacation home.  As a result of a building inspection, the inspection team issued an immediate alert to vacate the entire building because they found significant structural issues.  To cover the cost of needed repairs, the Homeowners Association (HOA) assessed each condo owner an additional $500/month on top of the existing $500 monthly HOA fee.
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How does loss assessment insurance coverage apply to the scenario above?

If you're a homeowner and an HOA member, there are typically shared common areas and structures that are under the oversight of the HOA.

If there is damage to these shared areas that exceeds the limits of the HOA's insurance, the HOA may levy a special assessment on its members to cover the remaining costs.

Loss assessment insurance is an endorsement that helps defray costs of an unexpected loss for individual homeowners that are members of an HOA.

In the scenario above, this endorsement could defray this additional assessment.  If not, then you would be responsible for it paying out of pocket.

Whether you need loss assessment insurance depends on several factors:

1.  HOA's insurance coverage: Understand what the HOA's master insurance policy covers and what it doesn't. If the policy provides sufficient coverage for potential damages and liabilities, you may not need additional coverage.
2. HOA's bylaws: Check its governing documents to understand if loss assessment coverage is optional or required and what your responsibilities are in case of losses.
3.  Financial ability: Consider your financial ability to cover potential special assessments out of pocket.

If you're a member of an HOA, it's important to be clear on your potential financial risk.  If you aren't comfortable with it, contact your independent insurance agent about adding this endorsement to your policy.