Underinsurance: why they pay less although the damage is proven
Short answer
With underinsurance the claim is paid in the ratio between the sum insured and the actual value of the property, so a partial loss is paid only partially.
How the arithmetic works
If the home is worth twice the sum it is insured for, the insurer contributes the corresponding share of the loss. The logic is simple: the premium paid for half the risk buys half the cover. It is not a penalty but a consequence of the sum chosen.
How people end up here
Usually not by intent but by time. The sum is set once and stays the same for years while construction and furnishing costs move. A policy written five years ago is often already underinsured without the owner having done anything.
The one check to make each year
Whether the sum insured still matches the cost of reinstatement, not the market price of the flat — those are two different things. Updating it at renewal takes minutes and is the only thing that stops the proportional reduction.
Frequently asked questions
- Is it reduced even for a small claim?
- Yes. The proportional rule applies to partial losses too — it depends on the ratio of the sums, not on the size of the particular claim.
- What if I insured for more than the value?
- Overinsurance does not buy a larger payout: what is paid is the loss actually suffered. The extra premium simply buys nothing.
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