As a responsible homeowner, you most likely did your research and found an insurance policy that would cover insured damage to your home and its contents. You made sure your home was insured to its full replacement cost, your liability limits were generous in case of an accident, and maybe you even purchased an umbrella policy to provide an added layer of protection in the event of a worse-case scenario. No need to worry about the clubhouse, common areas, or pool; your neighborhood homeowner’s association has that covered.
Or maybe you’re a conscientious condo-owner, and you carefully selected a policy to insure your contents and to help pay medical bills in case someone is injured on your property. Since your condo association has their own coverage that protects the exterior, common areas and so on, you and your insurance are only responsible for what happens inside. You’re feeling pretty good, right?
So, if a child is severely injured in a tragic accident at your neighborhood pool, a lawsuit ensues, and a judgement is found against your HOA for $1.5 million, you’re not out any additional money, are you?
What happens if a monstrous hailstorm destroys the roof of your condominium complex? Will your condo’s HOA insurance pay for all of that? You pay your homeowners’ association dues so the HOA can take care things like that, right?
Unfortunately, in both scenarios, the homeowner could very well be on the hook for a substantial amount of money. When an HOA has an unexpected loss to cover, it may bill back a percentage of the cost to the property owners, dividing it among the homes or units. It’s known as a loss assessment, and, no, your monthly dues don’t cover it.
Let’s consider the above scenarios in more detail:
- Example #1: A child is seriously injured in a tragic accident at the neighborhood swimming pool. A lawsuit ensues, and a jury finds the HOA liable and awards the claimant $1.5 million. The HOA’s liability policy has a $1 million limit. The association will assess the homeowners to cover the difference of $500,000. Depending on how many homes are in the neighborhood, this could be a pretty big deal.
- Example #2: A monstrous hailstorm destroys the roof of your condominium complex. Between the five buildings, the total damage is $250,000.00, but the deductible on the HOA’s property policy for wind or hail is 2% of the building values. If the buildings are valued collectively at $10 million, then the deductible would $200,000.00, meaning the association would need to assess the unit owners for the deductible in order for the roof to be repaired. Depending on the number of unit owners, this could be a catastrophic situation.
The reason it’s so important for Colorado home and condo owners to educate themselves about Loss Assessment Coverage is found primarily in example #2 above. Many, if not most insurance carriers in Colorado now require a wind/hail deductible of anywhere between 1%-5% of the total building value. A property owner must pay the deductible first, then the insurance company pays the balance. As Colorado property values increase drastically and our severe weather continues to intensify every year, homeowners face an ever-growing dilemma.
The solution and peace of mind is quite simple. For a small additional premium, home or condo owners can add up to $50,000 in loss assessment coverage to their policy. (Most standard policies cover up to only $1,000 in loss assessment.) The policy limits you select for your individual loss assessment coverage should depend on your HOA’s master policy limits. Talk to your HOA association about the master policy’s loss assessment limits before getting an insurance quote.
Do you really want to pay a loss assessment out of pocket when you could have a perfectly good policy do it for you? Contact our office today to have one of our team members assist you in updating your policy.