North Carolina Adjuster Practice Exam 2025 – Complete Study Resource

Having insurance coverage that is less than the value of the property is a clear example of underinsurance. This situation arises when a policyholder does not secure enough coverage to fully protect their assets, leaving them at financial risk in the event of a loss. For instance, if Jim's property is valued at $300,000 but he only has a policy covering $200,000, he is underinsured by $100,000. This shortfall means that if a disaster occurs, he would not be able to fully recover the value of his loss, resulting in significant out-of-pocket expenses.

Other options, while related to insurance, do not directly define underinsurance. Having too many policies can lead to confusion but does not inherently relate to the adequacy of coverage. High deductibles may result in higher out-of-pocket expenses during a claim but do not mean that the overall insurance coverage is insufficient. Lastly, failure to pay premiums on time may lead to policy cancellation or missed coverage, but it doesn’t directly correlate with the amount of coverage relative to the property’s value. Therefore, the scenario described in the correct choice directly illustrates the principle of underinsurance.