What is underinsurance and what are the consequences?

The short answer

In the case of underinsurance, the insured amount is lower than the actual replacement value of your belongings. If damage occurs, the insurer calculates the payout in proportion to the underinsurance. For example, if you are underinsured by half, you will only receive half of the damage compensation. This also applies to partial damage, not just total loss. The insurer applies the proportionality rule in this case.

What does the law say?

The rules on underinsurance are laid down in the Financial Supervision Act and the insurance policy conditions of insurers. Insurers may apply the proportionality rule when it becomes clear that you are underinsured. This means that they may reduce the damage in proportion to the underinsurance. However, the insurer must be able to demonstrate that there was underinsurance at the time of the damage.

What should you look out for?

Regularly check whether your insured amount still matches the current value of your possessions. Prices can rise due to inflation, renovations, or new purchases. Also, be aware of automatic indexation in your policy - this does not always prevent underinsurance. If in doubt, you can have an appraisal done.

Practical example

Jan has insured his house for €400,000, while the actual rebuilding value is €500,000 - he is therefore 20% underinsured. In the event of a kitchen fire of €10,000, the insurer will only pay out €8,000 (80% of the damage). This is because Jan has only insured 80% of the actual value. Even in this relatively small claim, the proportionality rule is applied.

What can you do?

Take these steps to prevent or resolve underinsurance: