What financial consequence do underinsured properties face during partial loss claims?

When dealing with underinsured properties in the context of partial loss claims, the financial consequence primarily involves a coinsurance penalty. This situation arises when the insured value of a property is less than the actual value or the value required for coverage under the policy’s terms.

In such cases, if a partial loss occurs, the insurer calculates the amount payable based on the proportion of the coverage to the actual value of the property. This means that the insured only receives a portion of the claim amount, which reflects the degree of underinsurance. For instance, if a property is insured for 70% of its value, and a loss occurs, the insurer would pay only 70% of the actual damages incurred, applying this coinsurance penalty.

Understanding this mechanism is crucial because it underscores the importance of ensuring that properties are insured for adequate value to avoid significant out-of-pocket losses during claims. Maintaining full coverage mitigates the risk of penalties when filing claims for partial losses.