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Simple English definitions for legal terms
underinsurance
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A quick definition of underinsurance:
Underinsurance: When you have insurance to protect your things, but the insurance only covers a part of the value of your things. This means that if something happens to your things and they are damaged or lost, you might not get enough money from the insurance to replace them completely.
A more thorough explanation:
Definition: Underinsurance is when an insurance policy only covers a portion of the value of a property, leaving the owner responsible for the remaining amount in the event of damage or loss.
Example: John owns a house worth $500,000, but he only has insurance coverage for $300,000. If his house is damaged in a fire and the repair costs are $400,000, John will have to pay $100,000 out of pocket because his insurance policy only covers up to $300,000.
Explanation: This example illustrates underinsurance because John's insurance policy only covers a portion of the value of his house, leaving him responsible for the remaining amount. In this case, John is underinsured by $200,000, which means he will have to pay that amount out of pocket if his house is damaged or destroyed.