What is underinsurance and how do I avoid it?
Despite its name, underinsurance is not really a lack of coverage. It is rather an unpleasant situation that can result in financial loss. It arises when the declared value of belongings insured is lower than their actual value. In this case, the insurance company calculates the percentage of underinsurance and subtracts it from the reimbursement based on the declared value:
Underinsurance% = (DeclaredValue / ActualValue)*100
Reimbursement = (DamageValuemax - Underinsurance%) - Deductible
DamageValuemax = estimated value of damaged contents, capped at the declared sum on the policy
Example 1: Break-in and theft with an estimated CHF 10,000 damage
Actual value of belongings: CHF 100,000
Declared value on policy: CHF 50,000
Deductible: CHF 200
Underinsurance: 50%
Reimbursement: CHF 4800
Example 2: Total damage with the same figures as above
Reimbursement: CHF 49,800
In case of total damage, the insurance companies generally cap their reimbursement to the value declared on the policy minus the deductible.
A lot of people prefer to insure the bare minimum of their belongings as they believe that not all are worth replacing in case of fire, water damage, etc. Some people prefer upcycling and second-hand household items that sell for much less than the brand new versions. However, from the insurance point of view, the policy has to reflect the replacement value of the item, i.e. its current shop or catalogue price and not the price you happen to have paid for it.
Therefore, if you are looking into getting household insurance, you have to go all-in and declare the entirety of your belongings. Unfortunately, you cannot pick and choose to, for example, insure your TV but not your bedside table.
The responsibility of correctly declaring the total sum to insure ultimately lies with the client, i.e. you.
However, you can avoid an expensive premium by insuring your valuables separately under an all-risk valuable objects policy. This type of insurance covers more types of claims. It covers theft but also accidental damage and loss. It applies to specific types of objects such as jewellery, luxury watches, designer furniture, artworks, music instruments, camera and lenses, etc.
If you have any doubts, wish to double-check you are sufficiently covered or get a new policy, don't hesitate to reach out. We'd be happy to help!
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