The term underinsurance refers to the situation that occurs when an insured object has a value greater than the insured amount, in simple words, if a claim occurs, the compensation to be received will be less than the value of the insured objective.
Why does underinsurance occur?
This happens when the property covered by the insurance is incorrectly valued and a lower premium has been paid than that which should have been paid if the property had been correctly valued.
The underinsurance situation does not usually arise when insuring motor vehicles, that is, cars or motorcycles, since the insurer itself is the one that values the asset that is the subject of the insurance.
Underinsurance usually occurs when home insurance is taken out, since in most cases the value of the property owned at home is not known exactly. Likewise, it also usually occurs when goods are acquired that have not been included in the insurance contracted.
Underinsurance vs Overinsurance
We already know that underinsurance is when a good is insured below the real value, but on the other hand there is the overinsurance that refers to insuring above the real value of the good. In the event that there is a claim, the insurer must compensate for all the damage caused, however, overinsurance has the problem that the policyholder will be paying a higher premium than he should.
As a conclusion, we recommend that you carry out a good inventory and review it annually in case of changes, since if a high-value good enters your home you must report it to avoid an undersurprise.