What Happens If I Under-insure?

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.