Overinsurance
Definition:
When insurance coverage exceeds the actual value of the property.
Explanation:
Overinsurance can lead to unnecessarily high premiums without additional claim benefit, since payouts are capped at actual loss. It may also encourage fraud.
Example:
If your home is worth $400,000 but insured for $700,000, you’re overinsured — and won’t receive more than $400,000 if it’s destroyed.
Why it matters:
This term affects how claims are handled and what payout a homeowner may receive.