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Investopedia explains 'Underinsurance'
Underinsurance can cause a serious financial crisis, depending on the asset that is insured and the extent of the shortfall in insurance. For example, assume a house and its contents are insured against all risks for $250,000, with a deductible of $20,000. It is subsequently destroyed in a fire, but the cost to replace the house and contents amounts to $350,000. The homeowner will have to make up the difference of $100,000 plus the $20,000 deductible from his or her own resources.
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