As a board member of a homeowners association (HOA), one of your primary responsibilities is to look out for the long-term financial stability of the community—and that includes protecting both shared property and individual homeowners from unexpected costs. While most HOAs carry a master insurance policy that covers common areas like roofs, lobbies, stairwells, and recreational spaces, those policies aren’t bulletproof.
When a claim exceeds the limits of your master policy or falls under a hefty deductible, the remaining costs often land squarely on the shoulders of your homeowners.
That’s where loss assessment coverage becomes essential—not just for individual protection, but for the health of the community as a whole.
Why Require Loss Assessment Coverage?
It Reduces Financial Shock During Major Events
Let’s say a storm rolls through and causes $600,000 in damage to the building, but your master policy only covers $550,000. That remaining $50,000 has to come from somewhere—usually through a special assessment charged to each unit owner. If some residents have loss assessment coverage and others don’t, you’re left with an uneven financial burden and potential disputes.
Requiring all homeowners to carry loss assessment coverage helps ensure everyone is equally prepared to contribute their share without creating hardship or conflict.
It Protects the Community’s Financial Reputation
If some homeowners are unable to pay their share of an assessment, the HOA may have to tap into reserves or delay critical repairs. Worse, it can lead to liens, foreclosures, or lawsuits that reflect poorly on the association’s financial health—something that can hurt property values and scare off potential buyers.
Loss assessment coverage helps avoid these issues by giving homeowners a dedicated source of funds when they’re assessed.
It Promotes Fairness and Transparency
By making the requirement part of your governing documents or rules, you’re setting clear expectations upfront. This prevents confusion when assessments do occur and reinforces a culture of shared responsibility within the community.
How to Require Homeowners to Carry Loss Assessment Coverage
Implementing this requirement doesn’t have to be complicated. Here’s a step-by-step guide to help your board put it in place:
Step 1: Review Your Governing Documents
Start by checking your HOA’s bylaws, covenants (CC&Rs), and rules and regulations to see what authority you already have. In some cases, the board may be able to enact a rule requiring proof of insurance without a full member vote. In others, you may need to amend the governing documents with homeowner approval.
Step 2: Work with Your Insurance Agent
Connect with your HOA’s insurance agent or broker to determine a reasonable coverage limit to recommend (or require). A common starting point is $10,000–$25,000 in loss assessment coverage, depending on the deductible amounts and policy limits in your master policy.
The good news? Loss assessment coverage is typically very affordable. In many cases, adding this protection costs homeowners just a few extra dollars per month—but it can save them thousands in the event of a major assessment. By keeping the required limit reasonable, you can protect the community without creating a financial burden for individual owners.
Step 3: Create and Distribute Clear Guidelines
Draft a simple one-pager or email that explains:
- What loss assessment coverage is
- Why it’s being required
- What minimum limit is expected
- A deadline for compliance
- How homeowners can provide proof (such as a declarations page)
Make the language clear, friendly, and informative. Position this as a benefit—not a burden.
Step 4: Set a Reasonable Timeline for Compliance
Give residents enough time to contact their personal insurance provider and update their policies if needed. A 30- to 60-day window is usually sufficient.
Step 5: Collect Proof of Coverage
Ask homeowners to submit a copy of their condo insurance declarations page showing the loss assessment coverage and its limit. Consider using a secure online portal or a designated email address to collect these documents.
Bonus Tip: Partner with a Local Agent for Group Education
Bring in a trusted insurance professional for a short Q&A session (in person or virtual) to help residents understand the change and walk them through how to update their policies. This extra step builds goodwill and helps homeowners feel supported—not forced.
Protecting the Whole Community Starts with One Simple Requirement
Requiring homeowners to carry loss assessment coverage isn’t just about preparing for “what ifs”—it’s about protecting your community from financial disruption, ensuring fairness among neighbors, and maintaining the long-term stability of your HOA.
With clear communication and reasonable expectations, your board can implement this change smoothly—and make sure every homeowner is better protected in the process.
Need help drafting language or guidance for your HOA members? We’re happy to help. Contact us today to get started.