Find out what these important concepts are and how to avoid them.
It is becoming more common for families to protect themselves and their homes with home insurance. But, if you are thinking of taking out a policy of this type, the first thing you should do is inform yourself well and correctly understand the concepts related to insurance in this branch, such as over insurance and underinsurance.
In this guide, we explain these two ideas and how they influence our policy. We remind you that with the insurance comparator of Acierto.com you will be able to compare all the products of the main companies in Spain. In addition, our specialists will resolve any questions you have without any cost or commitment.
What is Overinsurance?
Before getting into the matter, first, we must explain the concept of the sum insured. This is basically the capital that we are going to insure. Therefore, overinsurance occurs when this capital is greater than the value of the insured interest. In other words, we are paying more than we should because the goods covered by the policy are worth less than that amount.
It should be noted that overinsurance is considered “illegal” since, in the event of an accident, the client would be receiving more than he should receive, and therefore, he would be making a profit instead of simply covering the damages.
It may also be the case that there is more than one policy protecting the same thing. In this case, it will be necessary to notify the insurers since, otherwise, they will not be obliged to grant compensation. We would again be facing a case of overinsurance.
Compensation can never be awarded above the amount of the damage, therefore, we must make sure that it is not our case, since we would be paying a higher premium than we owe and, therefore, wasting money.
What is Underinsurance?
Underinsurance is the complete opposite of overinsurance. In this case, we would be paying a lower amount than we should, since we would have secured a lower capital than the real value of our assets.
This is very dangerous since, in the event that you suffer an accident at home, it may be the case that the cost of the damage amounts to a very high amount and the insurance only pays you apart due to being underinsured. This brings us to the “Rule of proportionality”.
proportionality rule
The best way to understand this rule is with an example: if a client has declared that the value of his home is 1,000 euros but in reality it is 5,000, in the event of an accident, the following formula will be applied:
Sum insured x Damages suffered / Value of the goods (real)
If an accident occurs and the damages have been valued at 3,000 euros, with the data from the previous example, the company would only grant us 600 euros. The rest we would have to pay ourselves.
Of course, there are many insurers that specify that in the event of an accident they cover the repair of the damage up to the insured amount. In the previous example, it would be up to 1,000 euros. These are the keys, together with comparing the different offers of the companies, to get good home insurance.