Under-insurance occurs when the amount you insure your property or possessions for is less than the actual cost of replacing or rebuilding them. In reality, buildings insurance should be based on the cost of rebuilding the property from the ground up. A property insured for £100,000 20 years ago may now cost significantly more to rebuild. If the rebuild value has increased but the insurance cover has not, policy-holders may face a nasty surprise if they ever need to make a claim. However, cutting corners on insurance, or failing to keep cover up to date can prove to be a false economy.