Under-insurance
Declare half the value and a partial loss pays half.
Definition
Where the sum insured is less than the true value of the goods, the insured is treated as their own insurer for the shortfall and a partial loss is reduced in the same proportion. Declare 60% of the value and a 10,000 partial loss pays 6,000, not 10,000. A total loss simply pays the sum insured, which is already less than the goods were worth.
Why it decides money
The saving on premium is a fraction of a percent of the value. The shortfall on a claim is a proportion of the whole loss. The trade is never worth making.
Related terms
- Sum insured
- The agreed figure the cover is written for, and the ceiling on any payment.
- Indemnity
- Putting the insured back where they were — no better.
More in value and premium
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