What is the effect of having inadequate coverage limits?

Having inadequate coverage limits means that the insurance policy may not provide sufficient financial protection to fully cover the value of the losses in the event of a claim. Therefore, when a policyholder experiences a loss, they may find that the compensation they receive is less than what is required to cover all expenses related to the loss. As a result, the policyholder would be responsible for paying out-of-pocket for any remaining costs that exceed their coverage limits. This scenario highlights the importance of evaluating and selecting coverage limits that accurately reflect the value of the insured property and the potential risks involved.

The other options do not align with the implications of inadequate coverage limits. Full compensation of losses during claims cannot occur if coverage is inadequate. Increased insurance premiums may occur due to many factors, but is not a direct result of having inadequate coverage limits. Better coverage in future policy terms does not directly correlate to currently having inadequate coverage, as it would depend on the terms set by the insurer at renewal. Thus, the most accurate consequence of inadequate coverage limits is that it can lead to potential out-of-pocket expenses for policyholders.