One of the motivations for purchasing a condominium is a desire to enjoy the benefits of home ownership without the level of day-to-day responsibilities of maintaining a home.
When you purchase a condo you own your individual unit and, as a member of the condo association, share ownership and responsibility with the other members for the buildings and grounds. The bylaws outline specific responsibilities of the unit owner and the condo association with the association generally managing routine maintenance responsibilities and costs including lawn care, snow removal, water & sewer, trash service, and upkeep of the buildings. These costs are a shared expense among all the members paid in the form of monthly dues.
Condo owners can be surprised from time to time when they are “asked” to contribute above and beyond their monthly dues with a special assessment. A special assessment can be simply for the purpose of catching up a budget shortfall or for funding unplanned or underfunded expenses.
One category of underfunded expense in a condo association that can result in a special assessment is if the association’s insurance doesn’t cover the entire cost of a claim. Loss assessment is coverage for condo owners that recognizes this potential risk and provides dollars for insurance-related assessments.
What are examples of insurance related damage that could result in a special assessment?
There are two types of insurance related damages that could result in a special assessment:
Property Damage: An example could be if a condo association owns a clubhouse that is destroyed by fire. The association finds they had the building insured for $150,000, but it will cost $200,000 to rebuild. If there are 50 units in the association a special assessment of $1,000 per unit would be required to make up the $50,000 difference.
Bodily Injury: A guest visiting a condo slips and falls suffering serious injury. As a result they sue the condo association and are awarded a judgement of $1.5 million dollars, but the association only carries $1 million dollars of liability coverage. The $500,000 difference would again be shared among the members: For a 50 unit condo association this would amount to a special assessment of $10,000 per unit.
In each of these situations condo loss assessment coverage would respond as the reason for each assessment would be covered by insurance.
Every individual condo policy includes $1,000 of loss assessment coverage. This limit can be increased for a very modest cost to $5,000, $10,000, or even $50,000 providing valuable protection in the event of an insurance-related special assessment.
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