Underinsurance and overinsurance: what do these mean?
When are you underinsured with your home contents insurance? And what is overinsurance? Comparis lets you know how to get the proper value of your household.
23.11.2023
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1. What does it mean when my household is underinsured?
Underinsurance means the contractually agreed insurance sum is lower than the actual replacement value of your home contents. Insurance benefits on first-loss cover are not dependent on underinsurance.
2. What are the consequences of being underinsured on my home contents insurance?
If you are underinsured, your insurance company will not pay you the full value of your household contents if they are damaged. You receive a share depending on the difference.
For example: your home contents are worth 100,000 francs, but you only insured 80,000 francs under your policy. In the event of damage, the insurance company will only pay you 80% of the value of the damaged household goods.
Calculate underinsurance: example
Your home contents are only 80% insured. Water damage ruins the sofa, which costs 4,000 francs. However, you only receive 3,200 francs from your home contents insurance – 80% of the replacement value. This figure doesn’t include any deductibles that may need to be deducted also.
3. How do I avoid being underinsured?
You avoid being underinsured if the value of your household goods matches the sum insured as closely as possible. Check the value of your household goods regularly.
Include future purchases in the contractually agreed sum. Tip: aim to make your sum insured about 10% higher than the actual worth of your household contents.
Automatic sum adjustment
Some insurers offer what is known as an automatic sum adjustment. This adjusts your insured household contents annually in line with inflation. This adjustment includes inflation when valuing your household contents and premiums. This is an automatic process.
The total adjustment is based on the development of the household value index and adjusts annually to the price development. Agreeing to automatic sum adjustment can help prevent you being underinsured.
Underinsurance Waiver
Some insurance companies offer what is known as an underinsurance waiver. When this is added into your contract, the insured sum is worked out using a fixed price per square metre. This fixed price varies depending on the insurer.
In the event of damage, the insurance company doesn’t check the value of your household contents for underinsurance. You receive 100% of the damaged goods’ replacement value up to the agreed sum insured.
Example calculation of an underinsurance waiver
Your insurance company sets a fixed price of 750 francs per square meter. Your apartment is 100 square meters. This results in a household contents value of 75,000 francs.
If the actual value of your household contents is 100,000 francs, the insurance company will still pay the full replacement value of any items if they are damaged. If your entire household contents are damaged (in other words, 100,000 francs worth of damage), you will receive a maximum of 75,000 francs from the insurance company.
5. When am I overinsured?
You are overinsured if the contractually agreed sum insured is higher than the replacement value of your household contents. In the event of damage, you will not receive more than the replacement value, as you would when paying the correct insurance rate.
However, when overinsured, you pay an excessively high insurance premium and do not receive any benefit in return.
This article was first published on 18.11.2021
