Being underinsured means that the coverage provided by your insurance policy is insufficient to fully cover the costs associated with a loss or damage to your property. 

Your insurance company will consider you as the insurer for the proportionate difference, and will be obligated to reimburse only their portion of the costs.  This appears in most policies and is called “Coinsurance”.   Coinsurance is considered a penalty imposed against the claim for underinsurance.

If you find yourself in a situation where you are underinsured and need to file a claim, several consequences may occur:

  1. Out-of-Pocket Expenses:
    • If your insurance coverage is inadequate, you may be responsible for covering the difference between the policy limit and the actual cost of repairing or replacing your property.
    • This can result in significant out-of-pocket expenses.
  2. Partial Reimbursement:
    • The insurance company will only reimburse you up to the policy limit, even if the actual cost of rebuilding or replacing your property exceeds that limit.
    • You would need to cover the remaining costs on your own.
  3. Inability to Fully Rebuild:
    • In severe cases of underinsurance, you may not have enough coverage to fully rebuild or replace your property.
    • This can lead to financial hardship and the inability to restore your property to its pre-loss condition.
  4. Impact on Personal Finances:
    • Underinsurance can have a substantial impact on your personal finances.
    • You may need to use savings, take out loans, or use other financial resources to cover the shortfall in rebuilding or replacement costs.
    • If you are in an HOA – you may face a special assessment to cover the shortfall.
      • Loss Assessment insurance will help in this case.
  5. Delay in Recovery:
    • Resolving underinsurance issues will (more than likely) lead to delays in the claims process.
    • Negotiations between you and the insurance company to determine the actual cost of the loss may take time, delaying the financial recovery and the ability to rebuild.
      • Engaging a Public Adjuster will help you navigate this process.
      • These delays are often excluded from any payments for financial losses such as loss of use, loss of rent, or additional living expenses.
  6. Strain on Relationships:
    • Whenever there are financial stresses, especially when these are seen as avoidable, this financial strain resulting from underinsurance can lead to stress and strain on personal and business relationships.
    • The emotional toll of dealing with the aftermath of a loss, coupled with financial challenges, can be significant.