It is considered underinsurance if the sum insured is lower than the actual value of the household contents. This has unpleasant consequences for the policyholder in the event of a claim. As a rule, the compensation is reduced in relation to the degree of underinsurance. Some insurance companies waive the reduction of benefits in case of underinsurance. To avoid underinsurance, it pays off to calculate the value of one's household contents correctly and adjust it from time to time. Insurance benefits for a "first loss" are not affected in case of underinsurance.
John and Jane moved in together a few years ago and took out contents insurance for 60,000 francs. Over the last few years, both of them have bought many new pieces of furniture, electronic devices, clothes, etc. Now their joint household has a total value of 90,000 francs. As a result, they are underinsured. One day, their furniture and other items worth 60,000 francs are damaged or destroyed by water. Due to the underinsurance situation, the insurance only covers 2/3 of the damage, i.e. 40,000 francs:
The underinsurance ratio is calculated from the insured 60,000 francs/90,000 francs = 2/3. Therefore, the insurance only pays 2/3 x 60,000 = 40,000 francs. John and Jane have to pay the remaining 20,000 francs themselves.