In brief - Under-insurance can leave you severely out of pocket
in the event of a claim
Under-insurance can have dramatic consequences for a business,
as it can leave you without sufficient cover in the event that a
claim is made under the policy.
What is under-insurance?
Under-insurance arises when property is valued for the purposes
of a liability policy for less than its value. For example, a
business may insure the value of its stock at $100,000. A premium
is calculated by the insurer on this basis.
However, if there is a fire where the stock is stored and it
turns out that the value of the stock had increased to $200,000,
then when it comes to calculating the insured loss, under most
liability policy wordings the insurer is entitled to impose a
penalty via under-insurance averaging or co-insurance
provisions.
