Home and business owners whose property is totally or severely damaged or destroyed by fires or in natural disasters for eg. hurricanes, earthquakes etc. most often find themselves far short of the insurance dollars they need to replace their property.  In these cases the home and business owner are underinsured, that is, there is a gap between the actual cost of replacing their damaged home or business and the payout they receive from the insurer.

Underinsurance occurs when the amount for which the property is insured is less than the replacement cost of the property.  You must always remember to insure your property for its replacement value and NOT the market value or purchase price. Where loss or damage occur and you are underinsured the policy “Condition of Average” will apply as demonstrated below:

Example
Replacement Cost of property = $24 000
Sum insured = $18 000
Difference = $6 000
Amount Claimed = $12,000

Formula
(Sum Insured / Replacement Cost)  X Amount Claimed

Calculations
(18,000/24,000) X 12,0000 = $9,000

In this case your claim settlement will be $9,000 and your will be "short" $3,000.00 and will have to bear this shortfall on your own.

Underinsurance is a significant problem in Trinidad and Tobago.  Therefore you must always ensure that your assets are properly insured for the replacement cost to ensure that in the event of a loss you would get your full claim.