What is under insurance? How does it affect the claims?
Ram Saran, Delhi
The concept of under insurance comes into play in case of asset insurance like your house or gadgets. If an asset is insured for less than its actual value, in insurance parlance it is said to be under insured. The principal of under insurance comes into play in the event of a partial loss to an asset. Typically it means that the insured is considered to be the self insurer to the extent of under insurance and therefore, becomes liable to bear a proportion of the loss.
For instance, if you insure your Rs 20,000 washing machine for Rs 15,000, then you will be considered to be the self-insurer to the extent of Rs 5,000. In case when this washing machine gets repaired and say it costs Rs 4,000 on the repairs; the insurer would pay only Rs 3,000 on the claim, which is in the same ratio as the sum insured has with the cost of the washing machine and because of under insurance, you will be required to bear Rs 1,000 in the proportion of risk retained by you. Therefore, it is always advisable to get an asset adequately insured.
