What Is Underinsurance, And Why Should I Care?

My eyes have seen

What my hand did.

-Robert Lowell

Underinsurance means that your property is insured for less than its worth.

When you purchase a homeowners policy your home is insured up to a certain limit. That limit is found on the Declarations Page of a policy.

Underinsurance Example

example underinsurance policy

In this Declarations Page example, the home (“Dwelling,” Coverage A) is insured up to the limits of $421,600. If your home was completely destroyed by a covered loss, then you are generally entitled to the entire limits of $421,600. But what if the actual value of your home was $721,600? Then you’re faced with a $300,000 uncompensated loss. That’s why understanding underinsurance is crucial.

Almost 60% of homes are underinsured by an average of 20% according to Consumer Reports. Data compiled by United Policyholders is sobering:

  • 53% of homeowners were underinsured by an average of $103,000 during the 2015 Valley Fire;
  • 65% of homeowners were underinsured during the 2015 Butte Fire;
  • 46% of homeowners were underinsured during the 2013 Black Forest Fire;
  • 55% of homeowners were underinsured by a average of $94,000 during the 2012 Colorado Wildfire; and
  • 56% of homeowners were underinsured by an average of $110,000 during the 2011 Central Texas Wildfire.

Of course the problem of underinsurance is not realized until it’s too late. So what to do?

Make sure that your insurance company has paid you your entire limits. At best, your insurance company should pay you the limits found on your Declarations Page. After that, there’s not a lot you can do.

Underinsured Homeowners Claim

In certain cases, however, you may be able to bring a claim against parties responsible for the damage. For example, perhaps a contractor burned down your home during a remodel. Although your insurance company paid you your dwelling limits, you were underinsured and therefore have uncompensated losses. In that example, you could bring a claim against the contractor for negligence and hope to collect your uncompensated losses. The Made Whole Doctrine, however, then becomes an issue. In other words, if you think someone is responsible for the damage to your property and you have uncompensated losses, you should contact a Property Damage Attorney.

Overall, your best scenario is that your property is adequately insured. Your second best scenario is that your insurance company has paid out your limits, and you can collect uncompensated losses from a negligent third party.

Going forward make sure your property is adequately insured so you can avoid underinsurance.

Questions? Contact Me for a free consultation.

Evan Walker

Evan W. Walker is a La Jolla attorney who has practiced law since 2008. He is licensed to practice in California, Connecticut, and Louisiana. His entire practice has been in litigation.

Evan is from a small town outside of New Orleans. He attended law school in New Orleans, which was interrupted by Hurricane Katrina. After evacuating to Houston, Evan graduated in 2008 as part of the ‘Hurricane Katrina Class.’

After graduation, Evan worked for a New Orleans insurance defense firm. He defended insurance companies against Hurricane Katrina lawsuits brought by homeowners and business owners.

In 2010, he and his wife moved to New Haven, Connecticut, so his wife could complete a medical residency at Yale. During the next few years, Evan worked for Travelers Insurance Company defending countless personal injury lawsuits.

In 2014, he moved to San Diego so his wife could complete a medical fellowship at UCSD. He then opened his own firm to represent people after years of defending insurance companies.

Evan is a Featured Faculty at Attorney Credits, a CLE company, and a regular contributor to various podcasts and publications. He has also been interviewed by San Diego television stations about his cases and practice.

Evan spent almost a decade as a defense attorney who defended insurance companies from personal injury and property damage lawsuits. He knows how insurance companies bully people and deny claims. And he knows how to fight them.

Bar Admissions: California Connecticut (inactive) Louisiana (inactive)

Acta Non Verba

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