Are you underinsured? What it really means
Underinsured doesn't mean uninsured — it means your policy would pay out, just not enough. The gap between your coverage limit and the real cost of a loss comes out of your pocket. The worst part: most people only discover it mid-claim. Here's how to check now.
Want this checked on your own policy? Use the Policy Review — upload your policy schedule and it flags low limits, missing coverages, and the gaps that leave you paying the difference.
The 30-second definition
You're underinsured when a realistic worst-case loss costs more than your policy would pay. Home insured for $250,000 but a rebuild costs $400,000 → you're $150,000 underinsured. Car liability at the state minimum of $25,000, but you cause an accident with $120,000 of medical bills → you're personally on the hook for the rest.
The 80% coinsurance rule most people miss
Buried in most home policies is a coinsurance clause: insure the home for at least 80% of its replacement cost, or the insurer can scale down every payout — even partial claims. Insure a $400,000-rebuild home for $250,000 (62.5% of replacement cost) and a $50,000 kitchen fire might pay out under $40,000, not $50,000 minus your deductible. The math: (250,000 ÷ 320,000) × 50,000.
Check this on your own policy
- Dwelling coverage (Coverage A) — compare it to a current rebuild estimate (local cost per square foot × your square footage), not your home's market value.
- Replacement cost vs actual cash value — ACV subtracts depreciation; on a 12-year-old roof that's a big haircut.
- Auto liability limits — the three numbers like 100/300/100. State minimums are legal, not adequate.
- Personal property sub-limits — jewelry, electronics, and collectibles often cap at $1,000–$2,500 per category unless scheduled.
- Inflation guard — check the endorsement list; without it, construction-cost inflation erodes your coverage every year.
Worked example (illustrative figures)
The kitchen fire that paid 78 cents on the dollar
| Item | Before | After |
|---|---|---|
| Home replacement cost | $400,000 | — |
| Dwelling coverage (Coverage A) | $250,000 | $330,000 recommended |
| 80% coinsurance threshold | $320,000 | — |
| Kitchen fire damage | $50,000 | — |
| Payout before deductible | $39,062 | $50,000 if properly insured |
Because $250,000 is below 80% of replacement cost, the coinsurance penalty cut a partial-loss payout by over $10,000. Raising Coverage A to $330,000 typically costs far less per year than one penalized claim. Illustrative figures; your policy's clause wording controls.
Fixing it is usually cheap
Raising limits costs less than people expect — moving a home's dwelling coverage up $80,000 or doubling auto liability limits often adds a few dollars a month, because insurers price the first dollars of coverage as the risky ones. The expensive mistake is finding out at claim time.
Check your own documents
upload your policy schedule and it flags low limits, missing coverages, and the gaps that leave you paying the difference.