Underinsurance
Definition:
When a property is insured for less than its full replacement cost.
Explanation:
Being underinsured can result in reduced payouts due to co-insurance penalties or insufficient limits. It often happens when coverage isn’t updated as property values rise.
Example:
If your home costs $500,000 to rebuild but is only insured for $300,000, you may not receive full coverage after a loss.
Why it matters:
This term affects how claims are handled and what payout a homeowner may receive.