The liability of the insurance company shall not exceed such proportion of any loss or damage as the sum insured bears to the full cost of reconstruction in its present or as new condition of the insured premises.

Underinsurance is a problem with indemnity cover, where the amount you are insured for is not enough to cover your loss or damage. This is a major problem particularly in times of major disasters such as flood or fire, as the cost to rebuild can easily rise due to the increased demand for builders and building materials.

The reverse side of this is over-insurance. Where you are insured for more than the amount required covering your loss or damage.  Over-insurance can be one way of creating a buffer to make sure you are fully covered.  However you need to be aware that you will not be entitled to an automatic payment of this higher sum.  The insurance company is entitled to reduce the pay out to the amount of your actual loss, and you will not be entitled to any refund of the higher premiums you paid because you were over-insured.