Danger of Under Insuring

In a New House Insurance post I explained how easy it is to under insure a property so here is an explanation of what can happen with an under insured property.

Let’s you insure your new house for what you paid the builder, say $200,000.

Total Loss

In the case of a total loss, yes, you get $200,000, but you will need to meet demolition costs and all the other issues mentioned in New House Insurance say $300,000.

Partial Loss

But what about if  part of your home is damaged?

Say it would cost $100,000 to repair the damage, but the insurer isn’t going to pay $100,000 to repair the house, – they’ll calculate that you were only 66% insured, and only pay out $66,000. Leaving you to find $34,000.

What can make this worse is that insurers aren’t obliged to pay out the cash! . . .  they may embargo the $66,000 until you’ve come up with the rest of the money.

Major Under Insurance

If you are really under insured there is a risk that the insurer will argue that you’ve deliberately under-insured and your policy is void.