Insurance is a product we purchase and hope we never have to use. Because of this unique characteristic someone may not look for the just cheapest coverage but consider not purchasing any coverage at all. Before you decide to forgo buying insurance for your condominium unit, it is best to consider the potential financial outcomes of “going bare.”
What is Insurance?
Let’s first start at the beginning and define the term insurance. Insurance is a financial instrument that transfers your risk of financial loss to an insurance company in exchange for a premium. Relative to the maximum benefit, insurance can be purchased for pennies on the dollar.
Why would anyone forgo insurance if it is relatively inexpensive compared to the possible benefit? The reason is simple – perceived opportunity cost. Those thinking about going bare view the risk only from the perspective of what they are giving up in paid premium. However, whatever opportunity you give up in paying premiums must be weighed against the financial impact of suffering an uncovered loss.
There are two primary components to a condominium insurance policy. The first and most obvious coverage is protecting your property. Your association insures common elements, such as roofs, exterior walls, and lobbies. You are responsible for everything inside.
In most states, your responsibility begins at the drywall, anything not permanently attached, or that which was not original to the unit at the time of construction. If you turn your condominium upside down, everything that would fall out is your responsibility. Additionally, if you upgraded cabinets, flooring, or wall coverings, you would also be responsible for repairing or replacing if damaged or destroyed.
Even though the average condominium unit is about 1,500 square feet, you would be amazed how much it would cost to replace everything if a complete loss occurred. Just think about how much you have collected over the years. Until it happens, most people aren’t aware how quickly things add up. For example, replacing all your socks and underwear could cost a couple hundred dollars.
The second component of a condominium policy is personal liability coverage. If someone is injured while visiting your unit and sues you, liability insurance will help pay your legal bills. Many policies carry standard limits between $100,000 and $300,000 although higher limits are available.
In many policies, personal liability insurance may also cover the medical payments for visitors who become injured. Many people believe their friends or family would never sue them if they were injured in their home. But it can and does happen. For example, a woman using her friend’s stationary bike was severely injured. Without having her own health insurance, she filed a claim against her friend’s condominium policy.
Determining whether or not to purchase condominium insurance is a financial choice. The limits for both property and liability coverage compared to the premium is usually very affordable and substantially less than insuring a home. To learn more about your condominium insurance options, contact my office today.