Condo insurance: What is loss assessment coverage?
When you have a condo, there are a few different things you need to be aware of when it comes to insurance. If you own or are planning to buy a condo, you need to know about loss assessment coverage.
Condo insurance coverage
There are a few different types of condo insurances. The main type is similar renter’s insurance: it protects your possessions in the event of theft or fire, or protects your pocketbook from third-party liability claims if someone is injured in your condo.
Unfortunately, that insurance only covers what goes on inside the walls of your condo. What if a visitor trips in the hallway? Or falls getting out of the elevator? Or has the parking garage door malfunction and drop onto the hood of his car? In those situations, condo owners are glad for their HOA’s master insurance policy.
A HOA’s master insurance policy covers condo owners for damages and liability which occur in the common areas of the condo building. The HOA pays for the insurance policy with the condo fees it collects from condo owners.
The master condo insurance policy might not be enough
The unfortunate reality of 21st century life is that sometimes insurance doesn’t cover as much as you need it to. While the HOA tries to protect itself as much as it can, the claim can sometimes be higher than its coverage.
Take for example, a child who is injured in an elevator accident. Once the medical bills, rehabilitation, and long-term injuries are taken into account, it’s not unreasonable to expect that the HOA ends up owing the child $3 million. If the HOA’s master policy is limited to $1 million, the difference is owed to the child by the condo owners themselves. In a large condo building with 100 units, this works out to $20,000 apiece. A smaller building with 10 units would see each unit paying $200,000 apiece.
This is where loss assessment coverage comes in. A condo owner who’s been assessed for damages which exceed the HOA’s master policy can claim the cost against their loss assessment coverage. Condo owners without loss assessment coverage are forced to pay the amount out-of-pocket.
Am I covered?
The best thing to do when buying a condo is to use condo specialist real estate agents and lawyers. These specialists will be able to explain the condo by-laws to you properly to make sure that you understand exactly what you’re purchasing. If you are already a condo owner and feel that your HOA master policy is inadequate, petitioning or joining the condo board to increase coverage could be a good idea.
In terms of the loss assessment coverage itself, check that the limit on your policy is adequate for your risk level. While $1,000 of coverage might be enough for a building with dozens of tenants, a smaller condo building could find that figure too small.
Finally, it’s important to realize that loss assessment coverage only covers claims that exceed the HOA’s master policy. Claims that the insurance company has refused or that are excluded from the policy cannot be claimed under loss assessment coverage.
Buying a condo is as big a step as buying a house – make sure you’re adequately insured to protect yourself from financial ruin.