If at the happening of any loss, damage to the property insured is less than 85% of the full replacement value at the time of loss, the insured is responsible for the difference of the loss or damage e.g.
|If the Rebuilding Cost of the home is||$200,000|
|Policy Sum Insured is||$100,000|
|Amount of Claim is||$ 75,000|
|The amount Paid will be||$ 37,500|
In the above example, the policy sum insured is only 50% of the rebuilding cost (i.e. $100k/$200k). Since this is outside the 85% concession allowed by the policy, the amount paid is reduced by the degree of under insurance. The degree of underinsurance is 50%, so the amount claimed ($75,000) is reduced by 50% to $37,500.