Insurance plays a crucial role in our lives, but what if you are not adequately covered in case of a damage? In this blog, we delve deeper into the concept of underinsurance guarantee and why it can be of vital importance for your financial peace of mind.
An example of how underinsurance works
Imagine you have a home contents insurance policy. When you initially took out the insurance, you estimated the value of your home contents to be €10,000. Several years later, you've purchased new furniture and inherited some valuable items, increasing the actual value of your home contents to €20,000. However, you haven't updated your insurance policy. Now, suppose a fire breaks out in your home, causing €10,000 worth of damage, including your furniture, clothing, shoes, and more. This can quickly add up to a substantial loss. Since the insured amount is only 50% of the actual value of the home contents, you will only receive 50% reimbursement for the damage. In this case, that amounts to €5,000.
In this scenario, having underinsurance guarantee is a wise choice. Without this guarantee, there is a risk that the insured amount is too low, resulting in only partial coverage in the event of a loss.
What is underinsurance guarantee?
Underinsurance guarantee ensures that you are not insured for an amount that is too low. This means that in the event of a loss, the insurer will not assess whether the insured amount still matches the actual value. The insurer guarantees to reimburse the actual amount of the loss, even if the insured amount is lower than the actual value. So, you can never be underinsured.
Can underinsurance guarantee also apply to a home insurance policy?
Yes, underinsurance guarantee works in much the same way for a home insurance policy. In the case of your home contents insurance, it pertains to the value of your belongings, while for a home insurance policy, it relates to the value of your property. With a home insurance policy, it concerns the amount required to rebuild your home.
Thanks to underinsurance guarantee, you can still receive a reasonable compensation for damages, even if your insured amount has not been updated to reflect the actual value of your home contents or property value.
