Underinsurance there just isn’t enough cover.
A common reason why people sometimes don’t get the full value of their insurance claim is that they have not insured their property for the correct amount. Most policies today contain an underinsurance clause or an average clause. The effect of this type of clause is that in the event that you insure your home for less than the full rebuilding cost of your house in the event of a claim your settlement will be reduced in proportion to the level of underinsurance. For example if you are insured for 30% less than the rebuild cost your settlement will be reduced by 30%.
Many policies have an average clause which may result in reduced payment if the damaged property is underinsured. This can be a particular problem when large house fires or Large Esacpe of Oil claims occour.
Often the property is unintentionally underinsured and in any case the savings on the premium is very small in comparison to the potential problems that can result in the event of a claim under your insurance policy.
For useful information on how underinsurance could cost you a lot of money in the event of an insurance claim and for useful information on choosing the appropriate sum insured.