Car Insurance

What Does ‘Underinsured’ Mean?

Being insured is important as it provides financial protection against unexpected events. However, not all insurance policies are created equal, and sometimes people can be left with insufficient coverage when they need it most. This is where the concept of being “underinsured” comes in.

Definition of Underinsured

Being underinsured means that a person or entity has insurance coverage, but the coverage is not enough to fully protect them in the event of a loss or accident. In other words, they do not have enough insurance to cover the full cost of damages or losses that may occur.

Causes of Underinsurance

Underinsurance can occur due to various reasons such as:

  1. Underestimating the value of assets: One of the most common reasons for underinsurance is underestimating the value of assets. If a person does not accurately estimate the value of their assets, they may end up with insufficient coverage.
  2. Choosing low premiums: Another reason for underinsurance is choosing policies with low premiums. While lower premiums may seem attractive at first, they often come with reduced coverage limits.
  3. Not updating policies: It is important to regularly review insurance policies and update them as necessary. Failure to do so can result in inadequate coverage as the value of assets may increase over time.
  4. Not understanding policy terms: Many people may not fully understand the terms and conditions of their insurance policies, which can lead to underinsurance.

Risks of Underinsurance

Being underinsured can have serious consequences, including:

  1. Financial strain: If an individual or entity experiences a loss or accident, they may be responsible for covering the remaining costs that their insurance does not cover. This can result in financial strain and even bankruptcy in some cases.
  2. Inability to rebuild: In the event of a loss, such as a house fire, underinsurance may prevent a person from being able to fully rebuild their home or replace their belongings.
  3. Legal repercussions: In some cases, being underinsured may result in legal repercussions if a person is found to be at fault for damages or losses.

How to Avoid Underinsurance

To avoid being underinsured, it is important to:

  1. Accurately estimate the value of assets: Be sure to accurately estimate the value of assets to ensure that coverage limits are sufficient.
  2. Choose appropriate coverage: When selecting insurance policies, choose the coverage that adequately protects against potential losses or damages.
  3. Regularly review and update policies: Review insurance policies regularly and update them as necessary to ensure that coverage remains adequate.
  4. Understand policy terms: Take the time to read and understand the terms and conditions of insurance policies to ensure that coverage is fully understood.


In conclusion, being underinsured can have serious consequences, including financial strain, inability to rebuild, and legal repercussions. To avoid underinsurance, it is important to accurately estimate asset values, choose appropriate coverage, regularly review and update policies, and fully understand policy terms.

Also Read: How Much is Car Insurance in California

Zoey Annette

Zoey Annette is the editor of Allstate Insurance. She's an Allstate insurance agent and a writer. Zoey loves spending time with her family, reading, and traveling.

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