Property · Insurance Term
Underinsurance (Underinsured)
Definition
Underinsurance means your limits are lower than what it would actually cost to rebuild or replace your property. It can leave you paying part of a loss yourself, either because your limit runs out or because a coinsurance penalty reduces your claim payment even on a partial loss.
In Plain English
The most common cause is using purchase price, tax value or an old figure instead of current rebuilding cost. Construction costs change, and an outdated building valuation can leave a gap.
With coinsurance, underinsurance hurts even small claims. The insurer compares your limit with the required amount and pays proportionally if you carried too little.
Solutions include updated appraisals, insurance to value reviews at renewal, and agreed value provisions that suspend coinsurance for the policy term.
Not sure how your policy handles this? Have us review it, or get a quote.
Example
Hypothetical: a warehouse costs $5,000,000 to rebuild and has an 80% coinsurance clause, so you need at least $4,000,000 of coverage. You carry $3,000,000. On a $400,000 loss, the policy may pay only 75% of the loss ($300,000), minus the deductible.
What to Watch For
- Get a current replacement cost estimate, not a market value.
- Check your coinsurance percentage and whether agreed value applies.
- Update values after renovations or additions.
- Remember that purchase price and rebuilding cost are different numbers.
Last updated October 14, 2026 · Primesure editorial team · How We Write