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Definition of 'Underinsurance'

Underinsurance occurs when you have purchased an insurance policy that does not cover your total financial risk. This can happen if you underestimate the value of your assets, or if you choose a policy with a low coverage limit.

Underinsurance can have serious consequences. If you suffer a loss that is greater than your policy limits, you will be responsible for paying the difference out-of-pocket. This could leave you financially devastated, especially if the loss is large.

There are a few things you can do to avoid underinsurance. First, you should make sure that you have an accurate estimate of the value of your assets. This includes your home, your car, your personal belongings, and any other valuables. You can get an estimate from an insurance agent or appraiser.

Second, you should choose a policy with a high enough coverage limit to protect you in the event of a loss. The general rule of thumb is to have enough coverage to replace your assets at their full replacement cost. However, you may need to purchase additional coverage if you have expensive assets or if you live in a high-risk area.

Finally, you should review your insurance policy regularly to make sure that it still meets your needs. Your coverage needs may change over time, so it is important to make sure that your policy is still adequate.

If you are concerned that you may be underinsured, you should talk to your insurance agent. They can help you assess your risk and recommend a policy that will provide you with the coverage you need.

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