Underinsurance is the situation that arises when the insured attributes to the object that the policy insures a value lower than that which the object actually has. In this way, the insured capital is less than the value of the insured interest. An example of this situation would be the insurance of a property (such as your house) declaring in the policy a lower value than it actually has.
If we had a policy in which this situation of underinsurance occurs, the consequences in the event of an accident would be that the insurer would have the right to apply the proportional rule.
What is the proportional rule?
With the application of the proportional rule, insurance companies try to avoid situations of unfair enrichment, avoiding possible fraudulent behavior. That said, when an accident occurs and the insured sum is less than the insured interest, this rule established by law in the Article 30 of the Insurance Contract Law.
Consequently, in these cases the insurance company is only obliged to pay the damage actually caused. In this way, the insurer will compensate the damage caused in the same proportion in which the sum insured covers the insured interest.
In a more practical way, we can verify that in a house whose real value is €120.000 but insured with a value of €100.000, in the event of a loss with damages amounting to €6.000, the insurance company will not compensate the total damage, but will apply the proportional rule compensating an amount of 5.000 euros.