A Portuguese mortgage lender requires buildings insurance as a condition of the loan, and sets a minimum figure — commonly the outstanding balance, sometimes the original loan amount. Meeting that condition and being properly insured against the proportional rule are two different tests, and the gap between them tends to open in exactly the direction that hurts the owner, not the bank.
What we analyse in a high-value home
In a property of real value the right cover is a matter of analysis, not of choosing a product. We look at the house, the way it is used and what is inside it, and only then approach the insurers whose underwriting fits.
Rebuild cost and sums insured
How the cost of rebuilding is established, whether the sums insured are sufficient and whether the policy limits the indemnity in any way — including how underinsurance and the proportional rule would apply.
Fire, flood, storm, earthquake and water
Which natural and accidental perils are covered, on what terms, with which excesses, and what local exposure — coast, river, slope, seismic zone — means for acceptance.
Contents, art, jewellery and collections
Whether contents are insured at a realistic value, which items need to be scheduled, how they are kept and what limits apply per item and in total.
Gardens, pools, outbuildings and equipment
Walls, pools, annexes, garages, solar installations and outdoor equipment: what is part of the building sum and what needs to be declared separately.
Liability, staff and the way the house is run
Liability limits set against the real exposure — guests, domestic staff, contractors, management services — and the cover that each of them may need.
Special properties and ownership structures
Historic or listed houses, unusual construction, properties owned through a company, and several homes in Portugal and Spain that should be insured coherently.
What we need to prepare a proposal
- Address, year of construction and gross area.
- An estimate of the rebuild cost, which we review with you; for Portugal we use the APS SCRIM simulator as a reference.
- Contents and valuables to insure, and how they are kept.
- Security, occupancy and any claims in the last five years.
- Your current policy, if there is one.
We assess the risk, analyse the conditions available and look for the protection that fits. All cover is subject to the insurer’s acceptance of the risk and to the terms of the policy issued.
Insurers and specialist partners
Adler & Rochefort works with insurers and specialist partners in the protection of private wealth, including Hiscox, Chubb, Liberty Mutual, Hispania and Innovarisk. The choice of solution depends on the characteristics of the property, the sums insured, its use and the underwriting conditions available. All cover is subject to the insurer’s acceptance of the risk and to the terms of the policy.
Two figures, two different jobs
The bank's requirement protects the bank's security over the property up to what it is owed. The proportional rule compares the sum insured against the property's actual rebuild cost — construction, demolition, fees, regulatory compliance — regardless of any mortgage. A policy can satisfy the lender's certificate in full and still be underinsured against the rule, because the two figures were never meant to be the same number. Nothing in the mortgage-approval process checks the second one.
Why the loan amount can start above rebuild cost
On some purchases, particularly where the price paid reflects a premium location or land value, the mortgage taken out can genuinely exceed what it would cost to rebuild the structure alone. Insuring to that figure at the outset is not a mistake — it happens to clear the rebuild-cost bar too. It is coincidence, though, not a policy designed around rebuild cost, and coincidences do not hold.
Why the gap opens as the mortgage is paid down
Every year the outstanding balance falls. Construction costs, over the same period, generally do not — they have moved substantially in Portugal over the last several years. A lender's minimum-cover certificate, once issued, is rarely revisited unless the loan itself is restructured. An owner who keeps the buildings sum insured lined up with what the bank's paperwork asked for years ago, rather than with current rebuild cost, can end up meeting the mortgage condition on paper while carrying a real underinsurance gap the proportional rule will apply in full on a claim.
The bank's certificate confirms a loan condition was met on the day it was issued. It does not confirm the sum insured is still the right number today.
What to actually put on the policy
- Take the higher of the two figures. Current rebuild cost, or the lender's stated minimum — whichever is larger, not whichever satisfies the paperwork.
- Review rebuild cost on its own cadence. The same annual review that applies to underinsurance generally applies here; it does not get a pass because a mortgage exists.
- Treat the lender's figure as a floor. It is a minimum condition of the loan, not evidence that the number is sufficient for the policy.
- Re-check after any capital repayment or restructuring. A lower loan balance is good news for the mortgage and irrelevant to what the building actually costs to rebuild.
This sits alongside, not instead of, the wider review in when the insured value stops matching the thing insured — the same drift, the same annual discipline, with one extra document in the file that can create a false sense that the number has already been checked.
Not sure the two figures line up?
Send us the lender's insurance certificate and the current policy schedule. We will tell you in writing whether the sum insured still clears rebuild cost.
Adler & Rochefort is a commercial brand of Ownizo, Unipessoal Lda., registered with the Portuguese Insurance and Pension Funds Supervisory Authority (ASF) under no. 425591790/3. General information only, not personalised advice; specific mortgage and insurance conditions vary by lender and by policy.
More on this subject: Underinsurance and the proportional rule · Life & mortgage protection for foreign buyers