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Underinsurance Explained: Risks, Losses & Why Full Coverage Matters

16 Oct 2025

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How Underinsurance can put you at RISK

Full Insurance = Complete Peace of Mind

Underinsurance means having coverage that is less than the actual value of your asset. This shortfall forces the policyholder to bear a significant portion of the loss, often leading to financial hardship. Maintaining adequate insurance not only protects the policyholder but also safeguards the bank’s interest by preserving asset quality.

Consider a situation where the cost to rebuild a damaged property is ₹ 20,00,000 but the property is insured for only ₹ 10,00,000. This means that the property is only 50% insured. In the unfortunate event of a claim for damage amounting to ₹ 8,00,000, insurance payout will be limited to 50% of the actual rebuilding cost.

Underinsurance

Reconstruction Cost : ₹ 20,00,000

Insured Amount   : ₹ 10,00,000

Damage Claim   : ₹ 8,00,000

Claim Payout ₹ 4,00,000

Full Insurance

Reconstruction Cost : ₹ 20,00,000

Insured Amount   : ₹ 20,00,000

Damage Claim   : ₹ 8,00,000

Claim Payout ₹ 8,00,000


Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. The information provided is generic in nature and is for informational purpose only. Please consult your financial advisor before taking any decision.

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    The contents of this article/infographic/picture/video are meant solely for information purposes and do not necessarily reflect the views of Bank of Baroda. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Bank of Baroda and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability with regard to the same. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Bank of Baroda or its affiliates to any licensing or registration requirements. Bank of Baroda shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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