What is under-insurance clause in home insurance?

[Rajeev S]

What is under-insurance clause in home insurance? How it will effect me?

[Contractor]

What is under-insurance clause in home insurance? How it will effect me?
Under-insurance occur when the amount for which the property is insured, is less than the value of such property.
EXAMPLE:
Value of property Rs 240,000
Sum insured Rs 180,000

Difference (as his/her own insurer) Rs 60,000

You are your insurer for 60,000.

[Matrix]

What is Under Insurance?
Under Insurance is a term used when an asset, i.e. your car is insured for less than its value. The result is that you will only be paid a proportional part of your claim. The best is to illustrate the principle involved by way of an example:

Value of car = 100 000
Insured for = 80 000
You put in a claim for 5 000 worth of damage to your car. As you are under insured the payout will be calculated as follows:

The term used is Average, and the implication is that you should always insure at replacement value. Technically, you become your own insurer for the balance of the loss.

80 000 x 5000 - 100 000 = 4000