The term “assessment insurance” can have two different meanings in the insurance industry, in reference to two distinct types of insurance products, one related to unexpected condominium assessments, and the other to a type of insurance policy. This type of insurance policy, also known as a stipulated premium, can charge a base rate for premiums with the understanding that in the event of unexpected losses, the insurance company can increase the size of the assessment and demand an additional payment from the policyholder. This type of insurance is relatively rare, and in some cases insurance companies may not be allowed to offer it.
In the case of condo assessment insurance, the insurance covers what are known as special assessments. Condominium associations charge a basic assessment every year to cover maintenance for the whole building. This fee usually includes some funds set aside in savings for unanticipated events, but natural disasters and other emergencies may necessitate a substantial outlay of funds to repair a building and make it livable again. In these situations, the association can charge a “special assessment,” asking members to pay more.
This assessment may be substantial and usually isn't in the budget of most owner-members of the association. Assessment insurance can cover it. The insurance will not cover the standard assessments all members must pay, but kicks in when special circumstances necessitate a special assessment. Condo owners can discuss the option of carrying assessment insurance with their insurance agents; it can be advisable if they do not have reserves of cash available for unexpected expenses. The condo association should also carry its own insurance to cover disasters, but members may want to think about what will happen if it allows the policy to lapse or purchases inadequate coverage.
In an assessment insurance policy with a stipulated premium, the insurance company charges a standard base rate for insurance. If risks change and the insurance company has to make a large payout, it can request more money from the policyholder. This is the stipulation associated with the premium, a clause in the insurance contract that allows the company to charge more money. The legality of assessment insurance varies by region, and some insurance companies may not be able to offer it or may choose not to do so because it doesn't fit in with their risk management policies and business practices. If it is available, policyholders can discuss it as a potential option with their insurance agents to determine if it is right for them.
