Definition
Underinsurance
Underinsurance occurs when the sum insured is lower than the real value of the insured item. In a claim, the 'average rule' applies: if the sum insured covers 70% of the value, you receive 70% of every loss — even a small, partial one.
Underinsurance is insidious because it does not show until a claim. You pay your premium and feel covered, but at claim time you discover the insurer reduces the amount proportionally. It appears most often in home insurance, when the sum insured has not been updated for years while build costs have risen.
In your own policy, compare the sum insured to a current value estimate. For a home, use rebuild cost per square metre, not the purchase price. PolicyWallet flags when the sum insured looks low relative to the property.
Upload your policy — free analysisFrequently asked questions
I pay in full — why would I get less?
Because the premium was calculated on a lower sum insured. The average rule cuts the payout by the same proportion.
Related
Educational content, not insurance advice. PolicyWallet explains what the term means and helps you find it in your own document — it does not assert what your policy covers.