What is condo special assessment insurance?

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Condo special assessment insurance, also called loss assessment coverage, pays your share of a special assessment, which is a one-time bill your condo association splits among all owners when it needs money its budget and its own insurance don’t cover. Special assessment insurance applies when a storm, fire or lawsuit leaves a cost the association’s insurance on the building, called the master policy, doesn’t fully pay.

A standard condo insurance policy pays up to $1,000 of your share, and you can raise that amount with an add-on. A higher amount matters because one storm can leave every owner in the building with a bill in the thousands.

The coverage won’t pay for bills tied to routine upkeep, upgrades or earthquake damage. A building that has put off repairs can still send you a bill you’ll pay yourself.

How can you avoid paying a condo special assessment out of pocket?

Raise your special assessment coverage above $1,000. Going from $5,000 to $25,000 in coverage often adds $20 to $50 a year, based on estimates from home insurer Hippo, and the higher amount pays your share of a big repair bill so it doesn’t come out of your savings.
Ask whether your policy pays more than $1,000 toward the association’s deductible. The deductible is the part of a claim the association pays before its insurance kicks in, and many policies cap your share of it at $1,000 even when you’ve bought more coverage. Knowing this before a storm lets you buy coverage for the rest.
Ask your association manager for the building insurance deductible. Your unit’s share of that deductible is the smallest bill you’d get after a covered loss, which tells you the least coverage worth buying.

How much will you owe if your condo charges a special assessment?

Your share of a special assessment depends on how your condo declaration, the legal document that sets each owner’s rights and costs, divides shared bills. Many condos split them by each unit’s percentage of ownership in the building, and some split them equally or by square footage.

Associations send these bills when their insurance leaves part of a loss unpaid. Michael Kilzer, an HOA insurance advisor at The Mahoney Group, a business insurance brokerage, describes when that happens.

“When a common area — say a roof, swimming pool, or clubhouse — is damaged and the HOA’s master insurance policy doesn’t cover the full cost of repairs, perhaps due to coverage limits or exclusions, the HOA may issue a special assessment to all unit owners to cover the shortfall,” Kilzer said.

Say a windstorm damages your building’s roof. The association’s insurance pays for the $500,000 repair minus its $100,000 deductible, and the association splits that $100,000 among owners.

In a 50-unit building that splits costs equally, you owe $2,000. If your declaration gives your unit a 3% share, you owe $3,000 instead.

Find your share of a special assessment

Multiply the cost the association’s insurance doesn’t pay by your unit’s percentage share from your declaration.

Your share = the cost the association’s insurance doesn’t pay × your unit’s percentage share

What does condo special assessment insurance cover?

Condo special assessment insurance pays your share of an association bill for damage to shared areas like the roof, hallways or pool, or for a lawsuit the association loses. It pays only when the damage comes from something your condo policy already covers, such as fire or wind.

Your base condo policy pays up to $1,000 of your share, and standard industry rules let you raise that amount to $50,000, with some insurers offering more. The comparison below follows the standard condo policy form described by the Independent Insurance Agents & Brokers of America, and your insurer’s form can differ.

What the association bills you for	Standard condo policy	With added coverage
Your share of fire or storm damage to shared areas	Up to $1,000	Up to your new amount
Your share of a lawsuit the association loses	Up to $1,000	Up to your new amount
Your share of the association’s insurance deductible	Up to $1,000	Often still $1,000
Repairs for age and wear	Not covered	Not covered
Upgrades and new amenities	Not covered	Not covered
Earthquake damage	Not covered	Not covered

Will special assessment insurance pay your share of the HOA deductible?

Special assessment insurance often pays only $1,000 toward your share of the association’s insurance deductible, even when you’ve bought more coverage. The standard add-on form caps this part of the coverage at $1,000 per unit, no matter how high your overall coverage goes.

That cap can leave you paying part of a storm bill yourself. If a windstorm leaves you with a $2,000 share of a $100,000 deductible, a policy with this cap pays $1,000 and you pay the other $1,000, even with $25,000 in coverage.

Some insurers sell separate coverage for your share of the deductible. Ask your agent whether your policy caps deductible bills at $1,000, and if it does, ask for a quote on deductible coverage so your policy pays your full share after a covered storm.

Which special assessments won’t insurance pay for?

Special assessment insurance pays only when the association’s bill comes from damage or a lawsuit your condo policy covers. Any other bill stays with you, even after you raise your coverage.

These are the association bills you’d pay yourself.

Repairs for age and wear stay with you. Replacing a roof at the end of its life or overhauling an aging elevator isn’t tied to sudden damage.
Upgrades and new amenities stay with you. A new gym, a lobby makeover or a repaved parking lot comes out of your pocket.
Flood and earthquake damage stays with you. Standard condo policies leave out both, which is why flood insurance and earthquake insurance are sold separately, and a special assessment for either one falls outside this coverage too.
Bills to refill the association’s savings stay with you. A special assessment to rebuild the association’s repair fund or pay for a project it didn’t budget for isn’t tied to a covered loss.

How much special assessment coverage do you need to avoid paying out of pocket?

Buy at least enough special assessment coverage to pay your unit’s share of the association’s insurance deductible, and buy more if your association has sent bigger bills before. Multiply the deductible by your unit’s percentage share to find the minimum, then compare it with the largest special assessment your association has charged in recent years and buy coverage for the larger of the two.

A lawsuit can push a bill past both numbers. When someone is seriously hurt in a shared area and wins more than the association’s insurance pays, the association can bill owners for the rest, so coverage above your deductible share pays more of that bill.

If your policy caps deductible bills at $1,000, extra coverage still pays your share of storm damage the association’s insurance doesn’t cover and your share of a lawsuit. It won’t pay more than $1,000 of your deductible share unless you add deductible coverage.

How much does condo special assessment insurance cost?

Raising your condo special assessment coverage from $5,000 to $25,000 often adds $20 to $50 a year to your condo insurance, based on estimates from home insurer Hippo. Your price depends on how much coverage you choose, your insurer and where your building sits, since a building in a hurricane region faces more storm damage.

Jo Ann Bauer of Coldwell Banker Realty points to what that cost protects against.

“Condo loss assessment insurance is typically an add-on option the homeowner can purchase to cover property damages in the community’s shared areas that may exceed or not be covered by the association’s master policy,” Bauer said. “This could save the condo owner a hit to the wallet if the association levels an expensive special assessment to cover damages.”

How to tell if your condo association may charge a special assessment

An association is more likely to send a special assessment when its savings are low, its building is aging or its insurance has a large deductible. Your association manager can give you the documents that show each one, including the latest reserve study, which compares the association’s savings with the repairs it expects to pay for.

These signs point to a bill on the way.

The reserve study shows savings short of upcoming repairs. Owners pay for any repair the savings can’t cover.
The roof, elevators or heating and cooling systems are near the end of their life. Replacing them is a large one-time cost the association needs to have saved for.
The association has charged special assessments before. Past budgets and meeting notes show how often it has turned to owners.
The association’s insurance has a deductible set as a percentage of the building’s value. A percentage wind deductible grows as the building’s value grows, and so does your share of it.
The building sits where hurricanes, wildfires or severe winter storms hit. One storm can damage the roof and shared areas of the whole building at once.
Board meetings show frequent emergency repairs or surprise fee increases. Each emergency repair comes out of the association’s savings, which leaves less for the next one.

If your building shows several of these signs, raise your special assessment coverage before the next storm season so your policy pays your share of the next covered loss instead of your savings.

How to add special assessment coverage to your condo policy

You add special assessment coverage by calling your insurer or agent and asking to add loss assessment coverage to your condo insurance. Asking the right questions gets you enough coverage to pay your share of the biggest bill your association is likely to send.

Work through these steps before and during the call.

Get the building insurance deductible from your association manager and your unit’s percentage share from your declaration, so you know the least coverage worth buying.
Ask your insurer which coverage amounts it offers and the yearly price of each, so you can weigh the cost against the size of your share.
Ask whether your policy caps deductible bills at $1,000 and whether it sells separate deductible coverage, so your policy pays your full share after a covered storm.
Get the add-on in writing with its coverage amount and its deductible, so you have proof of what your policy pays when you file a claim.

Frequently asked questions

Can you buy special assessment coverage after an assessment is announced?

Adding coverage after the damage may not raise what your policy pays for that loss, because insurers base the payout on the coverage you had when the damage happened or when the association sent the bill. Timing rules vary by state and policy, and some states require a new owner’s policy to pay a special assessment for damage that happened before the purchase, so ask your agent how your policy handles timing before you buy a condo.

What happens if a special assessment is more than your coverage limit?

You pay the amount above your coverage yourself. If your association charges a $15,000 special assessment and you have $10,000 in coverage, your insurer pays up to $10,000 minus your deductible and you pay the remaining $5,000. Every bill from the same storm or fire also draws from the same coverage amount, so a second bill for one loss gets paid only from what’s left.

Does special assessment coverage have its own deductible?

Special assessment coverage may come with its own deductible, which your insurer subtracts from what it pays toward your share. Ask your agent for that deductible when you add the coverage, since it lowers every payout.

What’s the difference between a special assessment and HOA dues?

HOA dues are regular monthly or quarterly fees that pay for the association’s ongoing costs and its savings for future repairs. A special assessment is a one-time charge on top of dues for a cost the budget didn’t cover, such as storm repairs, legal costs or a shortfall in savings.

Sources:

Independent Insurance Agents & Brokers of America. Loss Assessment Coverage.

CLM Magazine. Interplay.

IRMI. 10 Steps to a Well-Designed HO-6 Policy.

Hippo. Condo Loss Assessment Coverage: What It Is and When You Need It.

Maryland Insurance Administration. Condo Insurance Webinar Slides.

Maryalene LaPonsie

Staff Writer

Maryalene LaPonsie is a staff writer for Insure.com. She has 25 years of professional writing experience. She specializes in personal finance — insurance, investing and retirement.