What is the term for insuring a property for less than its full rebuilding cost?

The term that describes insuring a property for less than its full rebuilding cost is underinsurance. This situation occurs when a policyholder selects a coverage limit that does not adequately reflect the total amount needed to fully repair or replace the property in case of a loss. Underinsurance can lead to significant financial difficulties since, in the event of a claim, the insurance payout may not cover the full expenses incurred to restore the property to its original state. This could result in the policyholder having to pay the difference out of pocket, which can be a substantial burden.

Understanding underinsurance is crucial for both insurers and policyholders, as it impacts risk assessment and the adequacy of coverage necessary to safeguard against potential future losses.