One in six Americans lives in a homeowners association (HOA), whether in a condominium, townhome, or a single-family home. There are many benefits of a HOA but there are also drawbacks. One disadvantage of a HOA is the possibility of being assessed by the association.
Generally HOA dues cover the current operating expenses as well as long-term repairs. However, occasionally the HOA may need to come up with funds in excess of the dues collected. In that case, the HOA typically has the authority to impose a special assessment to cover the one-time expense of a major repair or improvement.
Insurance Implications -
Another unique situation when an assessment may be imposed relates to insurance. Sometimes HOA member are assessed by their association if there is damage to common property or if someone is injured on the premise. Here are some examples:
- The complex suffers a catastrophic loss (typically fire or weather related) and does not have enough insurance to cover the damages.
- Damage is caused by something not covered by the association’s insurance policy.
- The association purchased less insurance than the amount they are sued for by an injured guest.
- The association’s policy includes a high deductible and condo unit owners are assessed to help pay it.
A Solution –
All homeowner’s policies provide $1,000 of loss assessment coverage. There is an additional endorsement called Loss Assessment Coverage available for purchase that allows for increased limits – usually up to $50,000. Anyone who lives in an association should consider increasing to a higher limit. It is very inexpensive to do so. Loss Assessment coverage will pay for your share of the loss assessment subject to your policy limits and provisions. It’s important to note that Loss Assessment coverage may apply to property claims as well as liability claims.
If you live in or own a home in a HOA you may be faced with increased financial risk from assessments. The most important thing you can do is talk to your insurance agent. It’s always our recommendation to discuss risk and coverage before a claim. Together with your agent, identify your needs, define strategies to manage your risk and find the best solutions for your protection.