Not that I'm questioning the way the policies are set up, but shouldn't this underinsured nonsense only apply if you're trying to claim more than the insured amount?

As in, assume my car market value is 100k, and I insure it for 50k, the fact is I'm paying for 50k worth of protection, so if I have an accident that costs 5k to repair I should also get 5k what.

No, that is what almost everybody assumes, which is wrong. At one time I thought it was this too until you look up insurance policy on underinsurance. Every single insurance company has the same policy. To insure a car of 100k for 50k, you are telling the insurance company that you are only insuring half the car. Hence any claims against the insurance company will result in getting only half the claims. This is not life insurance where you cannot put a 'market' value for life and therefore you are insuring the amount that you can get when you submit a claim. For property insurance, this is how it works.

This is taken from AXA insurance FAQ: http://www.axa.com.my/index.asp?pageid=cs&prodid=faq

Question: What is 'underinsurance'?
Answer: Underinsurance means you insure your property (house, car or whatever) for less than it is really worth. If you do this, the insurance company is usually entitled to reduce any claims payment to you. For example, if you insure your house for RM 200,000 when it is has a true value of RM 400,000, the insurer may be entitled to reduce any claim payment by half (because you have only paid half the premium that you should have done). Therefore, it is important that you set and regularly review values you declare on items you are insuring.

This post has been edited by sleepwalker: Mar 21 2009, 12:51 AM

It's all about the premiums paid, the less you give them the less you get back too.