North Carolina Adjuster Practice Exam

In insurance terminology, what does 'underinsured' mean?

1. Having less coverage than the home’s value

2. Having no coverage at all

3. Having enough coverage but with high deductibles

4. Having a policy with low premiums

The correct answer is: Having less coverage than the home’s value

The term 'underinsured' refers to a situation where an individual or entity possesses insurance coverage that is insufficient to cover the total value of the loss they may face. Specifically, in the context of property insurance, if a home is valued at a certain amount, having less coverage than that amount would mean the homeowner is underinsured. This could lead to significant financial risk if a loss occurs, as the policy would not be enough to replace or repair the damaged property adequately. In contrast, having no coverage at all denotes being uninsured, which is a distinct term. Having enough coverage but with high deductibles would not classify as underinsured; rather, it indicates that the policyholder must cover a larger portion of the loss themselves before the insurance kicks in. Finally, a policy with low premiums does not inherently define underinsurance; it simply reflects the cost of the insurance relative to its terms and conditions, and coverage limits could still be adequate or not.