Final answer:
In cases of inadequate insurance coverage by a Condominium Unit Corporation, the unit owners are required to contribute their share to cover losses, a payment structure known as coinsurance.
Step-by-step explanation:
When a Condominium Unit Corporation has inadequate insurance coverage at the time of a loss, the financial responsibility to cover the shortfall usually falls to the unit owners. This shared financial obligation of the owners is known as coinsurance. Coinsurance is a common method of cost-sharing where the insurance company covers a specified percentage of the loss, and the policyholders, in this case, the unit owners, are responsible for the remaining percentage.
For example, if a condominium corporation had an insurance policy that only covered 80% of the costs of repairing building damage after a fire, the unit owners would collectively need to cover the outstanding 20%. Each owner's contribution would typically be proportional to their ownership interest in the condominium. This practice ensures that the risk of loss is not solely borne by the insurance company, which can help reduce moral hazard where policyholders might not act prudently if all risks were covered.