BROWSE

Underinsurance

Definition

Condition of average is the insurance term used when calculating a payout against a claim where the policy undervalues the sum insured. In the event of partial loss, the amount paid against a claim will be in the same proportion as the value of the underinsurance.

What is 'Underinsurance'

Inadequate insurance coverage by the holder of a policy. In the event of a claim, underinsurance may result in economic losses to the policy holder, since the claim would exceed the maximum amount that can be paid out by the insurance policy. While underinsurance may result in lower premiums paid by the policy holder, the loss arising from a claim may far exceed any marginal savings in insurance premiums.

Explaining 'Underinsurance'

Underinsurance can cause a serious financial crisis, depending on the asset that is insured and the extent of the shortfall in insurance. For example, assume a house and its contents are insured against all risks for $250,000, with a deductible of $20,000. It is subsequently destroyed in a fire, but the cost to replace the house and contents amounts to $350,000. The homeowner will have to make up the difference of $100,000 plus the $20,000 deductible from his or her own resources.


Further Reading


Dollarization of liabilities: Underinsurance and domestic financial underdevelopment
www.nber.org [PDF]
While there is still much disagreement on the causes underlying recent emerging markets' crises, one factor that most observers have agreed upon is that contracting" dollar"(foreign currency) denominated external debt-as opposed to domestic currency debt-created …

The Natural Catastrophe Protection Gap: Measurement, Root Causes and Ways of Addressing Underinsurance for Extreme EventsThe Natural Catastrophe Protection Gap: Measurement, Root Causes and Ways of Addressing Underinsurance for Extreme Events
link.springer.com [PDF]
While there is still much disagreement on the causes underlying recent emerging markets' crises, one factor that most observers have agreed upon is that contracting" dollar"(foreign currency) denominated external debt-as opposed to domestic currency debt-created …

Underinsurance in the United States: an interaction of costs to consumers, benefit design, and access to careUnderinsurance in the United States: an interaction of costs to consumers, benefit design, and access to care
www.annualreviews.org [PDF]
While there is still much disagreement on the causes underlying recent emerging markets' crises, one factor that most observers have agreed upon is that contracting" dollar"(foreign currency) denominated external debt-as opposed to domestic currency debt-created …

Who are the underinsured?Who are the underinsured?
www.jstor.org [PDF]
While there is still much disagreement on the causes underlying recent emerging markets' crises, one factor that most observers have agreed upon is that contracting" dollar"(foreign currency) denominated external debt-as opposed to domestic currency debt-created …

Insurance for catastrophes: why are natural hazards underinsured, and does it matter?Insurance for catastrophes: why are natural hazards underinsured, and does it matter?
link.springer.com [PDF]
While there is still much disagreement on the causes underlying recent emerging markets' crises, one factor that most observers have agreed upon is that contracting" dollar"(foreign currency) denominated external debt-as opposed to domestic currency debt-created …

Out-of-pocket costs, financial distress, and underinsurance in cancer careOut-of-pocket costs, financial distress, and underinsurance in cancer care
jamanetwork.com [PDF]
While there is still much disagreement on the causes underlying recent emerging markets' crises, one factor that most observers have agreed upon is that contracting" dollar"(foreign currency) denominated external debt-as opposed to domestic currency debt-created …

Gaps in vaccine financing for underinsured children in the United StatesGaps in vaccine financing for underinsured children in the United States
jamanetwork.com [PDF]
While there is still much disagreement on the causes underlying recent emerging markets' crises, one factor that most observers have agreed upon is that contracting" dollar"(foreign currency) denominated external debt-as opposed to domestic currency debt-created …

Reasons and remedies for underinsurance for child and adolescent vaccinesReasons and remedies for underinsurance for child and adolescent vaccines
jamanetwork.com [PDF]
While there is still much disagreement on the causes underlying recent emerging markets' crises, one factor that most observers have agreed upon is that contracting" dollar"(foreign currency) denominated external debt-as opposed to domestic currency debt-created …

Access to Care: Who Pays for Health Care for the Uninsured and Underinsured? A Symposium Introduction And OverviewAccess to Care: Who Pays for Health Care for the Uninsured and Underinsured? A Symposium Introduction And Overview
www.tandfonline.com [PDF]
While there is still much disagreement on the causes underlying recent emerging markets' crises, one factor that most observers have agreed upon is that contracting" dollar"(foreign currency) denominated external debt-as opposed to domestic currency debt-created …

Underinsurance and key health outcomes for children with special health care needsUnderinsurance and key health outcomes for children with special health care needs
pediatrics.aappublications.org [PDF]
While there is still much disagreement on the causes underlying recent emerging markets' crises, one factor that most observers have agreed upon is that contracting" dollar"(foreign currency) denominated external debt-as opposed to domestic currency debt-created …



Q&A About Underinsurance


Why does underinsurance result in economic losses to the policy holder?

The claim would exceed the maximum amount that can be paid out by the insurance policy.

What are some examples of assets that may cause serious financial crises if they are not adequately insured?

A house and its contents, vehicles, etc. could all cause serious financial crises if they are not adequately insured.

What is underinsurance?

Underinsurance is inadequate insurance coverage by the holder of a policy.

How much do premiums have to be reduced for an individual to make up for losses from underinsurance?

It depends on how much of a loss was incurred and what type of asset was insured.