Underinsurance Explained: Risks, Losses & Why Full Coverage Matters
16 Oct 2025
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
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