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What is Underinsurance

Posted on 08 Jul 2021
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While adequate property insurance provides you the much-needed financial backup when your property suffers loss or damage, you can be the victim of underinsurance in several cases. Underinsurance refers to the situation when your assets are insured for a lower value than their current price. Underinsurance is a common issue for property insurance in India, and you must be careful to take guard against it.

Understanding the risks of under-insurance in business

Characteristic of Underinsurance

If you are underinsured for your property and assets, the insurance payout is less than what it should be, and it may not be enough to cover replacement and repair costs for the asset damaged. In underinsurance, the policyholder is considered to be the self-insurer to the extent of underinsurance and needs to bear the proportion of the loss accordingly.

Let’s understand it with a numerical example. Suppose you have a washing machine costing Rs. 20,000 and insure it for Rs. 15,000, then you are considered to be the self-insurer to the extent of Rs. 5,000. Now, in the event of its damage, if the repairing cost is Rs. 4,000 then the insurer would pay only Rs. 3,000, which is in the same proportion as the same insured with the cost of the machine.

As you are underinsured, you need to pay the remaining Rs.1,000 from your pocket. As evident, the payout is less. While Rs. 1000 may not be a huge amount in case of a washing machine, it can be significant for a property where a huge amount is involved. You don’t want to get caught off guard and be in a situation where you end up paying a large amount of money from your pocket.

How to Prevent Being a Victim of Underinsurance?

While shopping for commercial property insurance in India and even otherwise, make sure you have accurately estimated the cost of your asset and its content. While it can be difficult to do so individually, professional help can aid you significantly.

Appoint a surveyor who will help you calculate the fair value of your property and assets and give you the final cost. Based on this cost, you can buy fire insurance with the optimum sum insured and ensure you are not underinsured.

To Conclude

Understand that purchasing a property involves a considerable sum of money, and on most occasions, it’s a one-time exercise. So, it’s prudent to gauge its fair value and opt for insurance accordingly.

If anytime you feel that your property is underinsured, take immediate steps at the earliest before a mishap. Talk to your insurer to elevate the coverage so that you don’t end up incurring out-of-pocket expenses.

  • Property Insurance Policy
  • Product Code: 4413
  • Product UIN: IRDAN115RP0006V01202021

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This contains only an indication of the cover offered. For complete details on risk factors, terms, conditions, coverages and exclusions, please read the sales brochure carefully before concluding a sale.ICICI trade logo displayed above belongs to ICICI Bank and is used by ICICI Lombard GIC Ltd. under license and Lombard logo belongs to ICICI Lombard GIC Ltd. ICICI Lombard General Insurance Company Limited, ICICI Lombard House, 414, Veer Savarkar Marg, Prabhadevi, Mumbai – 400025. . IRDA Reg.No.115. Toll Free 1800 2666. Fax No – 022 61961323. CIN (L67200MH2000PLC129408). customersupport@iciclombard.com. www.icicilombard.com. (Property Insurance, 4413 , IRDAN115RP0006V01202021)