Putting The Power In The People’s Hands

The issue with underinsured homes

On Behalf of | Jun 13, 2023 | Bad Faith Insurance Claims

Florida is no stranger to hurricanes and the risks they bring. This is why many homeowners in the state purchase insurance in anticipation of any storm-related damage to their properties. But even with insurance in place, homeowners may be at risk of underinsurance, and they might find their claims for total catastrophic loss denied because their insurer undervalued their properties.

When is a property underinsured?

A home is underinsured if there’s a noticeable difference between the actual cost of replacing destroyed property and the amount the policy reimburses for the loss. Underinsurance occurs when:

  • Exclusions in the policy create gaps in coverage.
  • High deductibles force the policyholder to pay more out of pocket before coverage kicks in.
  • The policy’s limits are too low.

Underinsurance can lead to either a delayed claim or the outright denial of one. It becomes an even bigger problem when the homeowner suffers a total loss of their property and their policy limits aren’t enough to cover the full value of the structure.

Why are insurers allowing underinsurance to happen?

Industry experts have suggested that the underinsurance issue is because insurers want policyholders’ business so badly that they’re undervaluing customers’ homes. By undervaluing a home, customers will pay a lower insurance rate and will more likely purchase coverage from the carrier. Insurers also gamble on policyholders having only basic information on their home’s total value and that a complete loss will never occur.

Combatting underinsurance

If an insurer sells them a replacement cost policy, homeowners must assert that their coverage limits must equal their total losses. But getting an insurance carrier to pay more than the policy initially stated could be tricky. In these cases, homeowners who find themselves underinsured can turn to litigation. An attorney with insurance law experience can help policyholders review their policies, understand the full value of their properties, and take insurers to court if negotiations to adjust the policy limits don’t fall through.