Condo special assessment insurance: What to know

What are condo special assessments?

Condo special assessments are charges a condominium association collects from unit owners when unexpected costs come up that aren’t covered by the regular budget or reserve funds. Examples might include emergency roof repairs, rebuilding after storm damage, or legal expenses that exceed what the association planned for in its annual dues.

A special assessment is different from monthly condo fees because it is not a regular, predictable charge. Instead, it is billed as needed and can be a significant out-of-pocket expense for owners. Laws like the DC Condominium Act outline a board’s authority to levy certain special assessments. Because they are unpredictable and sometimes large, special assessments can create financial stress for condo owners. That’s why many residents look into condo special assessment insurance as a way to protect themselves from surprise costs that can arise in shared communities.

This article is not intended to and does not constitute legal advice or create an attorney-client relationship. Board members should consult their association’s attorney to discuss the legal implications of their decisions or actions prior to proceeding.
 

Condo special assessment insurance

Condo special assessment insurance, sometimes called “loss assessment coverage,” helps pay a condo owner’s share of a special assessment when it’s connected to a covered event. For instance, if your condo association’s master policy only covers part of the cost of storm or fire damage and the remaining balance is passed on to owners through a special assessment, your condo special assessment insurance may reimburse you for your portion, up to the limits of your policy and after your deductible. Many condo owners have this protection built into their HO-6 policy, often with a base limit of about $1,000, though higher limits can usually be added for an extra premium.

It’s important to note that condo special assessment insurance doesn’t cover every type of charge. Assessments related to ordinary wear and tear, poor maintenance, or planned capital improvements may not be covered.
 

Avoiding condo special assessments

The best way to avoid condo special assessments is for associations to build healthy reserves, plan carefully for repairs, and carry strong master insurance policies. While individual owners can’t control every decision, there are steps you can take to minimize your personal exposure:

1. Review your association’s financial statements and reserve studies so you understand how well the community is positioned for future repairs.
    
2. Attend board meetings to stay informed about planned projects and upcoming costs.
    
3. Ask questions about the association’s master insurance coverage and how it interacts with owner policies.

Even with good planning, assessments may still happen. That’s why many owners choose condo special assessment insurance as a safety net. It doesn’t replace the need for strong financial management, but it can help reduce the impact if an assessment becomes necessary.

"One of the biggest factors that drives a special assessment is when reserves have been underfunded. For example, when there's a large expense two or three years out and an association has not incrementally increased their fees to bolster reserves that would otherwise cover it, that can force a special assessment."

Jack Boselli, senior vice president of finance at FirstService Residential

Discover funding alternatives for capital projects 

Borrowing money for capital projects is sometimes a viable financing alternative. For example, a community that intends to replace roofs over the course of several years might discover that it would be more advantageous to replace all of them at the same time, thereby eliminating bills for interim repairs. A good Washington DC property management company will have the resources to present financial alternatives to its associations and determine the most cost-effective options for your community’s insurance policy and capital projects.
 

Optimize your insurance coverage 

Insurance costs have been steadily rising for associations in recent years. Many property insurance carriers are now offering reduced coverages at higher prices. And in some markets, the number of insurance carriers has been decreasing. There is also a growing reluctance among some insurance providers to cover smaller associations. 

To properly budget for insurance costs, start by considering what your association has experienced over the last year regarding your insurance needs and what coverage you wish you had. Review your current coverage with your property management company to gain its insights on possible gaps. If your property management company has banking and insurance resources, tap into its buying power to secure the best possible rates for the coverage your community really needs.
 

Reality-based budgeting 

Occasionally, we see boards resist the best practice of raising regular assessments — either because they don’t want to deal with the residents’ reaction to it or they don’t want to pay more themselves, or both. However, in our experience, the decision not to raise regular assessments on a reasonable schedule can result in the need for a special assessment.

One of the easiest ways to avoid having to impose a special assessment is to develop budgets that are reality-based. A realistic budget comprises two basic categories: the amount of money you need to properly care for your community, and the amount of money you must put into your reserve fund according to your reserve study. Then, budget for those two categories each and every year.
 

How property management companies like FirstService Residential can help

Property management companies like FirstService Residential can help reduce the likelihood and impact of condo special assessments by supporting boards with financial planning, vendor negotiations, and insurance reviews. We’ve helped associations plan ahead to strengthen reserve funds and determine whether master insurance policies meet community needs. We also provide training and resources for board members so they understand how condo special assessments and condo special assessment insurance fit into the bigger financial picture of community management. With professional support, boards can make informed decisions that balance resident needs with the financial stability of the association.

If your property management company isn’t offering sound budget guidance and funding alternatives, contact FirstService Residential today to learn how we can support your community.