As a kid, whenever I was home sick I’d be faced with the inevitable problem faced by thousands in my situation: what to watch on daytime television. As soap operas were not my speed, I’d almost always settle on game shows. My favorite, like many, was the Price is Right. Some days I’d be lucky enough to catch my favorite part of the show; the $1 bid. When the other contestants grossly overestimated the value of the showcase, the entire audience (and one sickly kid watching from home) would be yelling for the contestant to bid $1. A victory for that contestant felt like a victory for all of us.
For some casual observers, a $1 victory may not seem fair. After all, a contestant may have bid $5000 on a $4999 showcase and lost to the $1 bid (as we all know, under Price is Right rules, one cannot go over). Unfortunately, life isn’t much like game shows. In the realm of insurance, you might feel victorious by finding a dirt cheap insurance policy (the equivalent of the $1 bid). At the end of the day, those who “go over” may be the only ones going home with a showcase of new items.
A client recently experienced a flood which started in a neighbor’s unit. All of the relevant parties (the neighbor, my client, and the association) had the proper insurance policies. All of those policies did in fact cover the areas they were intended to cover. The problem, however, is that while my client’s policy covered the fixtures, floor coverings, etc. of her unit, the amount of insurance was inadequate. My client was stuck with a hefty, and unanticipated, uncovered loss.
I do not blame my client for having insufficient insurance. I am just as guilty as most when it comes to the amount of insurance. I might ask for the “usual” amount or simply ignore the amount of coverage. Many of us blindly follow the recommendations of our agent. Worse yet, many people actively shop for lower limits in order to drive down the cost of the insurance. My advice is to pay attention to not only the type of insurance, but the amount of coverage. Ask questions of your agent, ask your neighbors how much they have, or perhaps even estimate the replacement value of your covered items. This is especially true if you’ve invested in upgrades to your home. For larger condominium associations, it is prudent to obtain an insurance appraisal to ensure the level of insurance is adequate. There are specific companies independent from insurers who provide this valuable service—which is tied to insurance values and construction costs, and not property values.
Bidding a dollar may get you far on the Price is Right, but gambling on being under-insured is unlikely to make you a winner in real life.
