Update your insurance policies
Underinsurance is one of the most common scenarios where an insurance company reduces the payout of an insurance claim. This occurs when the agreed insured amount is lower than the actual current insurable value of the property.
Update your insurance policies
The Civil Code states that "If the insured amount at the time of the insured event is lower than the insurable value of the insured property, the insurer shall reduce the insurance benefit in the same proportion as the insured amount bears to the actual insurable value of the insured property."
Underinsurance of real estate is a typical example. A client insured a production hall several years ago for an amount reflecting prices at that time. However, they failed to update the policy for several years, despite inflation. Subsequently, after an accident requiring a portion of the hall to be completely rebuilt, the insurance company identified underinsurance. Due to rising costs of building materials and labor, the current price for the client to rebuild that section of the hall is several times higher than when the policy was initially taken out years ago. The price increase exceeded 50%.
The issue of underinsurance is most prevalent in real estate, particularly for family homes, production halls, and similar properties, where the insured amount often goes unupdated for several years. Underinsurance can be avoided by accurately determining the property's insured value and regularly updating the insurance policy. Many insurers offer coverage up to a specified limit rather than a fixed insured amount. In practice, this means that even if the replacement cost exceeds the payout limit, underinsurance is not applied, and the amount up to the limit is paid out.
Don't be caught off guard. Regularly update your insurance policies and have the value of your insured property reviewed. Its value can change significantly with inflation. If you're unsure whether everything is correctly set up, don't hesitate to consult us regarding underinsurance. We are Eurovalley – the best insurance solution, or nothing.
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