The percentage by which you are underinsured matters.
Underinsurance clauses are based on the principle that if you pay only a portion of the premium that you should be paying to fully cover your home or contents – then you can only receive back an equivalent proportion of any claim.
Consider the following scenario:
|Your true replacement costs
|Your chosen sum insured
Your home is partially damaged in a windstorm and you make a claim for $250,000 for repairs. You would be paid:
|$250,000 (full claim amount) - 50% (percentage underinsured) = $125,000 (minus your deductible)