Understanding “Loss Assessment” Insurance

Loss Assessment coverage is not insurance that is purchased by a homeowners association. It is insurance that a homeowner purchases as a part of their own insurance coverage to provide benefits that will pay the homeowner’s share of a special assessment that resulted from a loss that was not fully covered by the homeowners association’s insurance policy coverage limits. The coverage comes into play when the homeowners association has experienced an event that would have been covered by the association’s insurance policy, but there were insufficient coverage limits to pay for the entire loss. To make up the shortfall, the association levies a special assessment against its members so that each member pays their pro-rata share of that shortfall. For owners that have loss assessment coverage as part of their homeowners insurance policy, the insurance will pay their share of the assessments– up to the maximum limits of the loss assessment coverage and subject to a deductible. The homeowners who do not have loss assessment coverage are personally liable for payment of the special assessment.

Examples of events that could trigger a need for loss assessment coverage are: