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Millennial Misconceptions of Insurance: Your First Home

There is a short list of goals that make up what is known as the “American Dream.” Within these goals one is particularly important to demonstrate your success, buying your first home. So what happens when that dream home, condominium, or town house is part of a homeowners association (HOA)? Statistics show that one in six Americans live in a homeowners association and of those even fewer have more than the minimum limit for what is known as loss assessment coverage.

Being part of a homeowners association is a shared financial responsibility amongst you and all of your neighbors. The technical definition is coverage that pays on your behalf your share of an assessment charged against all members of a homeowners association (you and your neighbors) as a result of a covered loss. You may be asking what this means and how it would affect you. In short, the HOA has a master policy that covers incidents outside your personal unit or home. So when there is an assessment for a hurricane that rips the siding off the clubhouse, little Tommy’s friend gets hurt in the swimming pool, or a pipe burst in the community fitness center, the homeowners association’s policy will cover it up to the limit on the policy, after the deductible if applicable. This is when the loss assessment coverage kicks into place. If your dream home’s HOA doesn’t have adequate limits then you and the rest of your neighbors are on the hook to pay the excess. To quantify this point, if your HOA has $1,000,000 in coverage and there is a $1,500,000 claim, then the members would have to pay that excess $500,000 divided equally amongst them.

At this point you may be thinking to yourself- my quote machine (sorry, I mean agent) told me that I have loss assessment coverage. That is true; all homeowners policies are built in with a $1,000 limit. With that in mind let’s go back to that $500,000. If there are 20 members of the HOA you will be paying roughly $25,000 each. That coverage your agent told you about will make sure that you only have to pay $24,000.

At this point in time I will reference the late Billy Mays when I say “but wait, there’s more” and in my opinion the most disturbing aspect of this coverage. Let’s say that the community fitness center was flooded around four months before you moved in. Everything was fine and dandy when you moved but a couple weeks later you get the news that you have to pay that $25,000 when you weren’t even living in the community. The date of the occurrence that generated the assessment is not a factor as long as the assessment is made during your policy period.

Buying your first home should be a joyous occasion; thus, buying a policy online or from a company that wants to write as many policies as possible just isn’t good enough. I asked some of the personal insurance advisors what it would cost to add the maximum coverage, $50,000, to a policy. Depending on the carrier the coverage ranges from $16 to around $60 a year. In most but not all cases this additional coverage is something that you as the client need to make your agent aware of.

Therefore, it seems as though the overarching theme of these blogs is that the minimum just isn’t good enough. You don’t achieve the “American Dream” by meeting the basic requirements so why would you put your trust in a company that sees that as the best way to do business? Insurance is one thing in our society that everyone is required to have but very few understand. My goal is to educate you in this area and keep that hard earned money where it deserves to be, in your wallet. If you belong to a homeowners association or are moving into a community that has one, be sure to contact your agent and review your loss assessment coverage.

For additional information and questions contact Rue Insurance at 609-586-7474.

Scott Harrigan

About Scott Harrigan

Scott started his career in insurance in 1988 and joined Rue Insurance in 2004 as a Marketing Specialist focusing on creating effective risk financing and risk transfer programs for companies and non-profit organizations. In addition to this he is a member of the Rue Insurance educational team that provides ongoing professional development in critical insurance concepts and programs to Rue employees. About Scott | More Posts by Scott