Underinsurance

When the sum insured is less than rebuilding, repairing or replacing property this is called underinsurance. When this happens the insured has not contributed fully to the full cost of the potential loss. When this happens the claim may be subject to average. This means that the insured will contribute to their loss in a proportionate way.

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It is very important to maintain an adequate Sum Insured.

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The following example will assist in calculating average:

The value of the property is $500,000

The sum insured is $300,000

There is a loss for $10,000

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Formula is   sum insured

                     -----------------   X  loss = claim payment

                         value

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                       $300,000

                       --------------   X $10,000 = $6,000

                       $500,000

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The insurance company will pay $6,000 (less the deductible) and the insured is responsible for the remainder.

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Click link to calculate claim.