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It depends on your policy form and by how much you're underinsured. Often, "coinsurance" applies, and you could find that if you suffer a loss, your claim might be reduced because you're underinsured. For example, let's say you should insure your house for the full replacement cost of $100,000, but to save money you only want to insure it for the amount you owe on it, or $50,000. Because you are only insuring 50% of the value, the insurance company will discount your claims to match that 50%. In other words, let's say you have a kitchen fire and the cost to repair your kitchen is $25,000. You might expect to receive $25,000 (less your deductible) since you have more than that in coverage limits. BUT, because you are only insuring to 50% of value, the insurance company will only pay you 50% of your claim, or $12,500 (less your deductible.) You're better off insuring to 100% of value. In fact, some of your additional coverages that the policy provides are within the limit on your house, so you may even want to overinsure just a bit. Sometimes it's cheaper to insure for a bit more than less, because more expensive homes on average are more likely to be well maintained, suffer fewer breakins, and have better safety and security measures. If your homeowner's liability limit is too low, and someone is hurt on your property, you could risk your other personal assets and future earnings. It's surprising how inexpensive higher liability limits can be. Your insurance agent can give you some quotes before you make a decision to change your coverage.

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Q: What would happen if my house is underinsured?
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