
If you are under-insured, you might be in for an unpleasant surprise if you ever need to make a claim. Even in situations of partial loss, it is likely that you will be deemed to be assuming a percentage of risk and you may not receive a complete pay out.
Business policies have one of the highest levels of under-insurance and it is estimated that over 70% of policies have some form of under insurance.
To show the impact of under-insurance, we include the following example based on a policy with 80% co-insurance:
Adjusted Loss = (Declared / Value) x Loss
If insured for $500,000 and the value at risk was $1,000,000 with a loss of $200,000, the claim would be adjusted as follows.
Adjusted Loss = ($500,000 / $800,000) x $200,000
Adjusted Loss = $125,000
In this example, the uninsured loss would result in a $75,000 lower payout.