If you have had or are having a claim, it is important to know that the compensation you will receive from your company is not random. Different criteria and variables will be taken into account according to the policy you hold. In other words, the insurer will compensate you fairly by assessing the damage that has occurred and based on the sums insured in your policy.
The proportional rule is the formula that the insurer can apply to calculate the compensation to the beneficiary of an Insurance policy in the event of a partial loss when the sum insured is less than the actual value of the insured object; that is, when underinsurance occurs. This rule is applied when a claim has occurred and after an assessment of the damage produced to the insured risk, the insurer receives and demonstrates that the value of the declared insured goods exceeds what is reflected in the sum of the policy and the premium paid, producing what is technically known as under-insurance.. That is, the real value of the insured object assessed by the experts is lower than the real value and the value declared in the policy is lower or less than that of the goods.
Insurance contract law 1980 regarding proportional rule
Law of the Insurance Contract of 1980, informs in its article 10: The policyholder has the duty, before the conclusion of the contract, to declare to the insurer, in accordance with the questionnaire that he submits, all the circumstances known to him that may influence the risk assessment. You will be exempt from such duty if the insurer does not submit a questionnaire to you or when, even if you submit it, there are circumstances that may influence the risk assessment and that are not included in it.
The insurer may terminate the contract by means of a declaration addressed to the policyholder within one month, as from the knowledge of the reservation or the inaccuracy of the policyholder. Unless there is intent or gross negligence on their part, the premiums relating to the current period at the time of making this declaration will correspond to the insurer.
If the claim occurs before the insurer makes the declaration referred to in the preceding paragraph, the benefit thereof will be reduced proportionally to the difference between the agreed premium and that which would have been applied had the true risk entity been known. If there was fraud or serious fault on the part of the insurance policyholder, the insurer will be released from the payment of the benefit.
If at the moment of the occurrence of the incident the insured sum is lower than the value of the interest, the insurer will compensate the damage caused in the same proportion as that covered by the insured interest. The parties, by mutual agreement, may exclude in the policy, or after the conclusion of the contract, the application of the proportional rule provided in the preceding paragraph.
Formula of applying the proportional rule
Then, and in accordance with what is described in article 10 of the insurance contract law, the following formula is applied to calculate the compensation: the insured amount (for example, 100.000 euros) is multiplied by the value of the damages (say , 25.000 euros) and the result is divided by the real value of the insured assets (consider that it amounts to 200.000 euros). For practical purposes, in this way the user will receive 50% of the damages as compensation. Applying the proportional rule, an indemnity of 12.500 euros will be received. In addition to this formula, the Law establishes that the compensation can be calculated
on the proportional difference between the premium paid (150 euros in the example at hand) and that which we would have had to pay (300 euros) if we had taken out our home insurance for the real value of the insured goods.
Taking care of your assets can involve heavy investments. Taking out a good insurance policy is a good decision and nowadays, it is indispensable, since you never know when you will have to face problems, some of them serious ones, that involve great expenses. Euroteide Insurance, (Insurance Advisors) is always by your side when it comes to taking out the insurance you need.
If, when there is a claim, the sum insured is less than the value of the insured interest, the insurer will indemnify the damage caused in the same proportion in which it covers the insured interest. Both parties and by mutual agreement, may exclude the proportional rule.
Be careful because if the insurance company shows that there was intent or gross negligence of the policyholder when he declared the assets that were part of the sum insured, he can be released from the obligation to indemnify in the event of a claim.
Let's see an example. If when someone knows the Insurance premium, consciously obvious, does not value certain goods to obtain a cheaper premium, he will incur under-insurance (he is not really insuring all the risk he incurs), and in case of a claim he can be "penalised" by the insurer when compensating him (or be left without compensation if it is proved that there was fraud or serious fault).
Sometimes, influenced by the desire to get a cheaper insurance premium, we incur underinsurance, "these things i do not declare that i have them", but when the loss occurs, the insurer reserves the right to apply the proportional rule to us.
Every time there is a claim with underinsurance , the insurer will use the proportional rule, which is part of the Insurance policy. That is to say, that underinsurance and proportional rule go together when an accident occurs.
How to avoid and not incur underinsurance
The simplest way to avoid underinsurance in Insurance whose basis is a "declaration of the value to be insured" by the policyholder or our part; is to have accurate and fair information, for example, the model or accessories of a car, value of the continent and content of a home in home insurance, etc.) We insist it is very important to review and correctly assess the value of the sums insured so that the fair premium is paid, and also in turn, that, after an incident, we are compensated for the expected total and the proportional rule does not apply. If you are not an expert when it comes to appraising assets, in Euroteide Insurance (Insurance Advisors) we will help you to appraise correctly and find the real value of the insured sums without incurring in under- or over-insurance and not suffering what is implied by the application of the proportional rule by the insurer.
Once an insurance policy is in force, it is important to periodically review the sums insured and if we are aware that the value of our goods has changed (to a greater extent). It is good to notify your Insurance Agent or broker of the new situation as soon as possible. If we do so, even if we have to pay a small additional premium, we will always be well insured and free of headaches in the event of a serious incident.
Article 11 of the Insurance Contracts Act provides clear information in this regard:
The policyholder or the insured shall, during the term of the contract, notify the insurer, as soon as possible, of the alteration of the factors and the circumstances declared in the questionnaire provided in the previous article that aggravate the risk and are of such nature that if they had been known to him at the time of the perfection of the contract he would not have concluded it or would have concluded it in more onerous conditions.
* Law 50/1980, of October 8, of the Insurance Contract.