Lauren Lewthwaite Last Updated On: June 27, 2023

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Loss Assessment Coverage: What It Means & Why You Need It?

What Is Loss Assessment Coverage

Insurance coverage can be confusing, especially when it comes to your home. When you add in shared spaces that you’re partly responsible for financially, things get even trickier. Loss assessment coverage is a term you’ve probably come across if you have purchased or are thinking of purchasing a condo or a home with communal spaces.

We’ll dive into exactly what it means, what it covers, and why you might need it below, because protecting your biggest financial investment is key.

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Understanding Loss Assessment Insurance

  1. What is Loss Assessment Coverage?
    If you live in a condo or shared community like a homeowners association, you share certain spaces with other owners.  Everyone is responsible for the costs of the upkeep and maintenance of these shared spaces; this is why you pay condo or homeowners association (HOA) fees. These fees in part go towards a master policy or a community HOA policy, which helps cover damage to common areas. However, the deductible can often be quite high, even split among multiple homeowners. This is where loss assessment coverage comes into play. 

    Loss assessment coverage is designed to protect you from that portion of the damage for which you’re on the hook. A simple loss assessment coverage definition is insurance coverage and financial protection for homeowners in developments that have shared area and therefore shared financial responsibility. Loss assessment coverage protects you from property losses and claims for that shared space, as well as liability coverage in case someone is injured in the shared area. 

  2. What’s Protected in Loss Assessment Coverage?
    Loss assessment coverage protects shared spaces in condos, developments, and shared communities. The definition of shared spaces can vary widely depending on the type of building and community, but there are typically common areas that all homeowners are responsible for (such as building exteriors, pools, elevators, hallways,etc.). 

    Loss assessment coverage relates to: 

    • Damage to exterior areas
    • Damage to interior areas
    • Injuries that occur in common areas

    Loss assessment coverage protects these areas from property damage, liability costs and medical expenses. This is when natural disasters strike (like tornados or wind damage), or if a visitor is injured on the shared property and incurs medical expenses. 

    It’s important to note as well what loss assessment coverage doesn’t cover: just like homeowners insurance, there are important exclusions that you’ll want to know about upfront. Loss assessment coverage doesn’t pay for property improvements, of course, or natural wear and tear, but it also doesn’t cover any damage not specifically covered in your loss assessment coverage policy. Understanding the restrictions and limits of your loss assessment coverage policy is crucial to being prepared should something happen.

  3. Why is Loss Assessment Coverage Important?
    Natural disaster or personal liability claims can add up fast, and you and other homeowners have to foot the bill for anything that the master policy doesn’t cover. For example, if an earthquake caused $400,000 of damage to shared buildings and the master policy only has coverage up to $300,000, you and the other homeowners would have to split that $100,000 difference. Loss assessment coverage is designed to protect you from that share of the difference, but without loss assessment coverage, this type of unexpected event can easily be financially devastating to homeowners. 

    Loss assessment coverage is separate from your condo homeowners insurance policy. If you’ve purchased homeowners insurance, it may likely have loss assessment coverage for your condo already built in. If you’re shopping around for homeowners insurance and have a condo, make sure your policy includes loss assessment coverage so that you’re protected as much as possible. 

    To choose the right amount of loss assessment coverage, make sure you know the deductibles of your HOA’s master policy; this will help you make an educated and financially practical choice when it comes to purchasing insurance to protect your home and shared space.

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The Bottom Line

When it comes to protecting your home and financial assets, being prepared is key. Choosing loss assessment coverage protects your financial interests when it comes to shared spaces in your condo or shared community, and including it in your homeowners insurance just makes good sense. 

Lauren Lewthwaite Lauren Lewthwaite has been freelance writing for almost five years writing content that ranges from health to insurance and everything in between. Lauren is also a trained translator in French and English and is a dog-mom to an adorable Australian Shepherd.

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