Underinsurance occurs when an individual or entity has insufficient insurance coverage to fully protect against potential losses. This can happen when policy limits are set too low, leaving the insured vulnerable to significant financial risks in the event of a claim. For example, a homeowner may have a policy that covers only a fraction of their property's value, which could lead to substantial out-of-pocket expenses after a disaster. Many people underestimate the value of their assets or fail to update their coverage as their circumstances change. This can result in gaps in protection, especially in areas like health insurance, where rising medical costs can lead to unexpected expenses. Regularly reviewing and adjusting insurance policies is essential to avoid underinsurance and ensure adequate financial security.