What is Condo Special Assessment Insurance?

By Heidi Unrau | Published on 19 Jan 2023

Condo Special Assessment Insurance

Condo living is a hot topic among aspiring homeowners with tight budgets. If you’re seeking relief from crazy rent and real estate prices, get ready to put your big kid pants on. Living in a condo comes with unique obligations, like paying for a special assessment. This unexpected bill is the ultimate curveball that can cost you big bucks. Yikes! Luckily, there’s insurance for that. Don’t get thrown off your financial game plan. Here’s everything you need to know about condo special assessment insurance.    

What is a special assessment?

A special assessment is a fee each unit owner must pay to fund specific projects or repairs to the complex that are outside of the condo corporation’s regular budget. Usually, it is used to cover major unexpected repairs, upgrades, and other related costs. Some common examples of projects or repairs that may be funded by a special assessment include:

  • Fixing any major damage to the building’s structure or common areas
  • Updating equipment like elevators, heating, or electrical systems
  • Making big improvements to the outside of the building or the shared spaces like the gym, pool, or parking lot
  • Following any new laws or regulations that come out
  • Saving money for projects that might happen in the future

The master policy & condo fees

Your condo corporation has something called a master insurance policy that covers damage to common areas like lobbies, elevators, stairways, and the building’s structure. It also has an operating fund that should have enough money budgeted for regular and projected maintenance, as well as a reserve fund for irregular and unexpected expenses. The condo fees you pay go towards the master insurance policy, the operating fund, and the reserve fund.

But sometimes something happens that no one could have planned for. In the event the condo corp’s master insurance policy falls short of covering the total cost of repair, it will turn to the reserve fund. If there isn’t enough to make up the difference, it’s on you and the other unit owners to pay the shortfall.

Here’s an example:

A special assessment in the wild

During my time as a lender, clients of mine fell behind on their loan. When I finally got a hold of them, the account was seriously in arrears. They were unable to keep up with the payments thanks to a surprise bill of $14,000. Insert skull emoji here. No wonder they were dodging my calls!

What the hell happened? Their condo building was sinking and the foundation required extensive repairs, or the building would eventually become unsafe to live in. Each unit owner was required to pay $14,000 to cover the cost. Yikes! Do you have that kind of money just laying around? 

The cost of a condo special assessment can be substantial. Without the right protection in place, it can be downright devastating – like it was for my clients. That’s where condo special assessment insurance comes in.

What is condo special assessment insurance?

Condo special assessment insurance can help cover your share of the cost if the complex and other shared areas suffer damage from a sudden and unexpected event included in the master insurance policy. This type of special assessment has a very specific name, called a loss assessment.

In the case of my unlucky clients, condo special assessment insurance could have covered most – if not all – of the $14,000 loss assessment required to fix the building’s foundation. 

Think about that for a minute. 

How would you feel if you had to suddenly come up with tens of thousands of dollars? How would that affect you, your family, and your financial security? That’s a pretty scary thought. 

Condo bylaws

Depending on where you live, bylaws for condos typically include provisions for special assessments. These bylaws outline the process for how a special assessment is calculated, collected, and used to pay for repairs or improvements to the common areas of the building.

Bylaws also specify who is responsible for paying the special assessment, like the owners of the individual units, the condo corporation, a mix of both, etc. It may also include details like the notice period that you must be given before a special assessment is collected, and the method used to calculate the assessment, like per unit, per square foot, etc. 

Additionally, condo bylaws may include guidelines for how a special assessment is approved by the condo board and unit owners, such as the percentage of owners that need to vote in favour of it before moving forward. Some bylaws also include provisions for what happens in case you are unable to pay the special assessment – like foreclosure, a payment plan, or a hardship clause.

It’s important to know your rights and be familiar with your condo building’s bylaws because they play an important role in determining how special assessments are handled.

Do you need condo special assessment insurance?

Condos are growing in popularity, and not just for the generally lower purchase prices. Many people are choosing to buy condos for the convenience, amenities, and sense of community they offer. 

Before you sign on the dotted line, it’s important to be aware of the potential risks and liabilities that come with living in a shared space and why you should consider getting condo special assessment insurance: 

Expect the unexpected

Special assessments can happen at any time and can be for large amounts of money that most people aren’t prepared to pay. If the building’s roof suddenly needs to be repaired or replaced, or the foundation suddenly needs to be fixed, for example, the cost can be many thousands of dollars.

Without condo special assessment insurance, you are responsible for paying your share of the cost. Even if you’re aware that a building has issues and a future special assessment is likely, it’s not always possible to budget for such a large expense.

Peace of mind

You’re already responsible for paying your own condo insurance policy, as well as the mortgage, monthly condo fees, property taxes, and other expenses. Having condo special assessment insurance means that if you are faced with a significant unexpected expense, you won’t have to bear the entire cost alone. It could very well save you from financial trauma – like losing your home or bankruptcy

Protect your investment

When unexpected costs arise and there is no insurance in place to cover them, it puts a significant financial burden on unit owners. This can lead to defaults on mortgage payments and potential foreclosures, which can cause the value of the units in the complex to suffer. Ultimately, it puts the entire building at risk. When everyone is covered, it ensures the continuity of the building and the well-being of the complex – which protects the value of your investment. 

How to get condo special assessment insurance

Condo special assessment insurance can protect you from the financial burden of a loss assessment, which is a specific kind of special assessment. In many cases, you can get loss assessment coverage as an add-on to your existing condo insurance policy – a type of homeowner’s insurance for condo owners.

Insurance can be unnecessarily complicated. If you’re feeling overwhelmed, an insurance broker can help you understand the different coverage options that are available. They can also guide you through the process of filling out and submitting the necessary paperwork.

You will have to provide some information about your condo building like its age, location, and overall condition. Make sure you’re aware of any specific requirements or limitations that may be imposed by your condo corporation or the lender that financed your mortgage. While condo special assessment insurance isn’t required by law, some mortgage lenders may require you to have it to protect themselves against loss.

How much does it cost?

The price for condo special assessment insurance varies among providers. It also depends on the type of insurance coverage you choose, as well as the size and location of the complex.

To find the best price and coverage for your needs, contact different insurance providers to ask if they offer condo special assessment coverage. Better yet, use an online comparison site to shop around and compare condo insurance quotes, terms, and conditions. 

Heidi Unrau is a senior finance journalist at Hardbacon. She studied Economics at the University of Winnipeg, where she fell in love with all-things-finance. At 25, she kicked-off her financial career in retail banking as a teller. She quickly progressed to become a Credit Analyst and then Private Lender. This hands-on industry experience uniquely positions her to provide expert insight on loans, credit scores, credit cards, debt, and banking services. She has been featured in publications such as WealthRocket, Scary Mommy, Credello, and Plooto. When she's not chasing after her two little boys, you'll find her hiding in the car listening to the Freakonomics podcast, or binge-watching financial crime documentaries with a bowl of ice cream. Fun Fact: Heidi has lived in five different provinces across Canada and her blood type is coffee.