Loss assessment insurance covers an owner's portion of an special assessments levied by the association a loss is covered by the association's insurance but exceeds the association's policy limits. Following are two examples:
A child is seriously injured in the association's swimming pool and $5 million in damages are awarded but the association is only insured up to $2 million
A director defames a homeowner and a court awards damages that exceed policy limits.
A fire causes significant damage to the clubhouse but the association under-insured for the loss, i.e., the cost to repair exceeds the association's policy limits by $300,000.
. In each case, the association would be required to special assess the membership to cover the difference between the policy limits and the loss suffered. A homeowner's loss assessment coverage
would pay his share of the special assessment.
. Loss assessment insurance is coverage purchased by individual homeowners not the association. It can be a stand-alone policy but more often is a rider added to an underlying policy purchased by the owner. Owners need to be aware that loss assessment coverage:
Only pays for losses covered by the association's insurance policy. For example, if an association does not carry earthquake insurance, loss assessment coverage will not pay for any special assessments related to earthquake damage.
Only pays up to the amount of coverage purchased by the owner. If an Owner buys a $1,000 policy and owners are hit with a $9,000 special assessment, the policy will only pay $1,000. The homeowner will be responsible for the remaining $8,000.
Will not cover special assessment to cover deferred maintenance.
May or may not cover an owner's portion of the association's deductible. If an association has a $50,000 deductible, homeowners will be special assessed to cover the deductible.
: Homeowners should add loss assessment coverage to their policies and should talk to their insurance agents to determine the appropriate levels to carry.