By FPA member, Henry J. Ramirez, JD, CFP®
Last Updated: September 10, 2012
You’ve just returned from your condominium association meeting, where you were told that the association had reached a settlement on a personal injury lawsuit for $2.5 million. The association was being sued by an individual who had fallen down the stairs. The good news is that the association’s insurance carrier will pay $1.5 million. The bad news is that the other $1 million will have to be paid by the 20 individual condominium owners, which means you will be assessed $50,000 by the association.
There’s even more good news and bad news. The good news is that most individuals’ homeowners policies—in this case, the form used for condominium owners—does provide coverage for loss assessments of this type (and also for property damage to community property). But the bad news is that the typical maximum coverage is only $1,000—leaving you with a $49,000 out-of-pocket expense in this situation.
How to Protect Yourself
This standard $1,000 limit can usually be increased (for example to $50,000) with a rider at a reasonable fee—good news! If you belong to a condominium or homeowners association, you should consider purchasing additional loss assessment coverage to avoid the bad news of any potential out-of-pocket expenses.
Steps to Take as a Condominium Owner
First, confirm your association maintains adequate property and liability insurance by checking their limits. The need may seem obvious, but some associations are run by volunteer board members whose primary goal is keeping association fees low. To achieve this, they may only be purchasing minimal insurance coverage. Any shortfalls will ultimately be the responsibility of the individual owners.
Secondly, check with your insurance agent to see how much loss assessment coverage your individual policy provides. Based upon your association’s limits, determine if you need added coverage. If you do--purchase it! This way, if you ever find yourself in the same situation, good news prevails!
FPA member Henry J. Ramirez, JD, CFP® is a Financial Advisor with Wescott Financial Advisory Group, LLC, an SEC-registered, fee-only investment advisory and wealth management firm, with offices in Philadelphia, Boca Raton, Miami and San Francisco.
