Understanding Underinsurance: What It Means for Your Coverage
Definition & Meaning
Underinsurance refers to a situation where an insurance policy provides coverage that is insufficient to fully compensate for potential losses. This means that the insured amount is less than the actual value of the property or the total damages that could occur. In legal terms, underinsurance can lead to significant financial burdens for individuals who suffer losses, as they may not receive the full benefits they expected from their insurance agreement.
Legal Use & context
Underinsurance is commonly encountered in the context of property and automobile insurance. It is particularly relevant in personal injury cases where an underinsured motorist causes an accident. Legal practitioners often address underinsurance in civil litigation, especially when determining compensation for damages. Users can manage certain aspects of underinsurance claims through legal templates available from US Legal Forms, which can help simplify the process of filing claims or negotiating settlements.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A homeowner has a property valued at $300,000 but only carries $200,000 in insurance coverage. If a fire causes $250,000 in damages, the homeowner will face a $50,000 loss due to underinsurance.
Example 2: A driver is involved in an accident caused by another driver who only has $25,000 in liability insurance, while the damages total $50,000. The injured party may struggle to recover the full amount due to the other driver's underinsurance. (hypothetical example)