Underinsurance is basically the difference between the value of something and the value of insurance that protects it. For example, a homeowner can underestimate the value of their possessions, which may be significantly higher than they originally estimated when they purchased contents insurance.

A home that is underinsured can only be protected up to the value at which its possessions were originally estimated. Therefore, homeowners should always ensure that the level of insurance they have bought is enough to cover all of the contents in their property.