The underinsurance waiver

Definition: What exactly is an underinsurance waiver?

When you buy contents insurance, you state how much your home contents are worth. The amount is your insured sum. Since it can be difficult to estimate the value exactly, we offer you a guideline of €650 per square meter. If you live in a 40 sqm apartment, the value of your household contents = your sum insured is 40*650 = €26,000.

If you agree to this guideline, a waiver of underinsurance applies in case of a claim. This means that your insurance won’t check whether the insured sum actually equals the value of your insured contents.

If the underinsurance waiver doesn’t apply and it turns out that your contents are more valuable than stated with the insured sum, it will result in a proportionally smaller payout in case of a damage.

For example, if the insured sum is €80,000 and the actual value of your contents is €100,000, you have only covered 80% of your valuables. Consequently, in the event of a damage, only 80% of the actual loss will be paid out.

What happens without an underinsurance waiver?

If you agree with the guideline provided by your insurance regarding your insured sum, they usually do not check the actual value of your household contents in the event of damage. However, if you specify a lower sum insured, they may have to check the value of your entire household contents in the event of a claim. If they determine that the insured sum is too small, you will receive a proportional payment in the event of a claim.

Does it make sense to agree to the underinsurance waiver?

The idea behind the insured sum is that it should reflect the overall value of your household contents. This would also be the amount paid out if all of your contents were destroyed by an insured danger, such as a fire. Calculating your insured sum is tricky and complex, and most of the time doesn’t take into account that the value of your contents changes over time. It is likely that a correct insured sum at the time of buying an insurance may become too small over time.

Agreeing to a waiver of underinsurance cancels out the risk of being underinsured. Your insurance company agrees that it won’t check the actual value of your contents in case of a damage. Changes regarding the value of your contents don’t need to be reflected as they are already accounted for.

What it means to be underinsured when you have a water damage

Let’s assume that the insured sum only reflects around 80% of the actual value of your household contents because you chose to set it manually to €80,000 - not knowing that the actual value was €100,000.

One day, there’s a water damage in your apartment. After you report the damage to your contents insurance, they check the actual value of your contents because you have not agreed to the underinsurance waiver. After finding out that your insured sum only reflected 80% of your valuables, they inform you that only 80% of your damage will be paid out. As the damage amounts to €2,000, your payout will be €1,600.