Why Condo Boards Must Understand and Communicate the Importance of Loss Assessment Coverage
As a member of your condo association’s Board of Directors, it’s vital to understand the risks unit owners face—and how the decisions you make around insurance and communication can directly impact them.
One area that deserves serious attention is Loss Assessment Coverage. This often-overlooked feature of an individual unit owner’s HO-6 policy can mean the difference between financial protection and a costly surprise for residents when disaster strikes.
Let’s walk through what loss assessment coverage is, why it matters to the board, and how to address it proactively with your community.
What Is Loss Assessment Coverage?
Loss Assessment Coverage is part of a condo owner’s personal HO-6 insurance policy. It covers their share of costs when the association’s master insurance policy doesn’t fully cover a property or liability loss.
This usually comes into play in three key situations:
- The master policy deductible is high and needs to be split among owners.
- The loss exceeds the master policy’s limits.
- The association is held legally liable, and the insurance payout isn’t sufficient.
Why This Is the Board’s Concern
While the board does not manage individual unit policies, it has a responsibility to help protect the community financially and reduce friction in the aftermath of a claim.
Here’s why boards must pay attention:
- Master Policy Deductibles Are Rising
Many associations now carry $100,000 to $250,000 wind, hail, or hurricane deductibles—especially in disaster-prone regions. If a major loss occurs, those deductibles often become unit owner assessments. - Uninsured or Underinsured Owners = Financial Conflict
When owners are surprised by special assessments—and don’t have loss assessment coverage—this can lead to serious tension, legal disputes, or unpaid assessments. - Preventable Problems Become Management Nightmares
Claims that lead to special assessments are already stressful. The situation is made worse when dozens of owners realize too late that they aren’t properly covered.
A Realistic Scenario
Let’s say a fire damages common property, and the association’s insurance has a $150,000 deductible. If there are 60 units, that’s a $2,500 assessment per unit.
Owners without loss assessment coverage—or with only $1,000 in coverage—are now personally liable for the remainder. The board will have to enforce collections, negotiate payment plans, or face delinquencies.
Best Practices for Boards
Here’s how your board can help reduce risk and increase owner preparedness:
🔹 Review Your Master Policy Annually
Understand your deductibles, coverage limits, and exclusions. Work with your insurance broker to assess whether your coverage aligns with the association’s risk profile.
🔹 Educate Owners Proactively
Distribute clear information about:
- The current master policy deductible
- What types of events could lead to loss assessments
- Why loss assessment coverage is essential for every owner
Consider hosting an annual insurance Q&A session or inviting your broker to a meeting.
🔹 Recommend Coverage Minimums
While you can’t require specific coverage, the board can strongly recommend that owners carry at least $10,000–$25,000 in loss assessment protection, especially if the master policy deductible is significant.
🔹 Coordinate with Your Property Manager
Ensure your management company is aligned on this issue and includes it in new resident onboarding materials and regular owner communications.
Final Thoughts
Loss Assessment Coverage may not be top-of-mind until it’s urgently needed. As a board, you’re not responsible for owners’ personal insurance—but you are responsible for anticipating potential points of friction and managing risk at the community level.
By understanding how loss assessments work and proactively communicating their importance, you’re not only helping owners protect themselves—you’re protecting the financial stability of the association as a whole.
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