What is one consequence of underinsurance for individuals?

Underinsurance refers to a situation where an individual does not have sufficient insurance coverage to meet their financial obligations or the needs of their dependents in the event of a significant loss, such as death or disability. The consequence of underinsurance, particularly in the context of life insurance, often means that there will be insufficient funds available to meet the needs of beneficiaries.

For example, if a policyholder passes away without adequate coverage, their loved ones may struggle to cope with the loss of income, cover funeral expenses, pay off debts, or maintain their standard of living. Having insufficient life insurance can lead to emotional and financial strain on the beneficiaries, ultimately failing to provide them with the necessary protection that the policyholder intended.

In contrast, the other choices do not directly relate to the core issue of underinsurance. Increased tax obligations typically arise from specific financial situations rather than underinsurance itself. Higher premium costs generally pertain to the market and policyholder’s choice in coverage rather than the consequences of not having enough coverage. Lastly, guaranteed premium refunds are usually associated with certain policy types but are not a concern tied to the repercussions of being underinsured.