Underinsurance is not a decision anyone makes. It happens by standing still: a figure set once, renewed automatically, while construction costs, a collection and a currency all move underneath it. In Portugal the consequence is arithmetic, and it is applied to partial claims as well as total ones.
The proportional rule, in one paragraph
Portuguese policies apply the proportional rule (regra proporcional, the average clause in English practice). If the sum insured is lower than the true value of the insured property, the insurer settles claims in the same proportion. Insure a €1,000,000 rebuild for €600,000 and you are 60 per cent insured; a €100,000 water-damage claim is settled at €60,000, less the excess. The claim was well inside the sum insured, and it was still cut. This is contractual arithmetic, not a claims-handling attitude, and it applies to buildings, contents, stock, equipment and collections alike.
The premium was calculated on the figure you declared. The settlement is calculated on the same figure. Nothing in the process notices the gap until the loss adjuster measures it.
Why the figure drifts
- Construction costs. Rebuild cost is labour, materials and professional fees at today's prices. It has moved substantially over the last five years, and a figure set before that period understates the rebuild even if nothing about the house has changed.
- The house changed. A pool, an annexe, a new kitchen, a solar array, a converted basement — each adds rebuild cost, and none of them updates the policy on its own.
- Things appreciated. Art, watches, jewellery with significant gold or stone content, classic cars and wine do not depreciate on a schedule. Some of them have doubled while sitting still.
- Things were bought. The single most common cause: an acquisition joins the household and never joins the schedule.
- A restoration completed. A car or a piece of furniture part-way through work is worth less than the finished object. The insured value should follow the work, not the invoice date.
- Currency. A collection valued in sterling or dollars and insured in euros moves whenever the rate does.
How often each class actually needs revaluing
| What | Basis | Review |
|---|---|---|
| Buildings | Rebuild cost: construction, demolition, fees, regulatory compliance | Annually against construction-cost indices; a full reassessment every 3–5 years or after any works |
| General contents | Cost of replacing as new | Annually, in outline |
| Art | Fair market value, or replacement value for editioned and decorative work | Every 3 years, sooner in an active market for the artist |
| Jewellery and watches | Replacement cost from a comparable retail source | Every 2–3 years; sooner where gold content is high or the model is in demand |
| Antiques and collections | Fair market value, with a pair-or-set provision | Every 3–5 years |
| Classic and collector cars | Agreed value on evidence | Annually at renewal |
| Wine | Current replacement cost by line | Annually — a cellar moves faster than most schedules |
| Boats | Agreed value | Annually; after any refit |
What an underwriter will accept as evidence for each of these — and who can issue it in Portugal — is set out in getting a valuation an underwriter will accept.
What indexation does, and what it does not
Most Portuguese policies apply an automatic indexation clause, uplifting the sums insured each year by a published index. It is useful and it is not sufficient. Indexation tracks general inflation; it does not know that you finished a basement conversion, bought a painting, or that the model of watch in the safe has trebled at auction. It also cannot correct a starting figure that was wrong: an index applied to an understated sum produces a slightly larger understated sum.
Two other mechanisms are worth asking about by name. Some specialist wordings waive the proportional rule outright, or apply it only where the under-declaration exceeds a stated tolerance — typically 10 or 15 per cent. Others write scheduled items on an agreed value basis, which removes the argument for those items entirely because the figure is fixed in the contract in advance. Neither is a reason to leave the schedule out of date, but both change what an honest mistake costs.
Where over-insurance is the problem instead
The rule does not work in reverse. Insuring a €600,000 rebuild for €1,000,000 does not produce a larger settlement — indemnity is capped at the loss actually suffered — it simply produces a larger premium every year. Over-declaration is common on properties insured at purchase price rather than rebuild cost, and on modern cars still insured at what they cost new. It is quieter than underinsurance and it is not free.
A renewal that is actually a review
Once a year, before the renewal date rather than after it:
- Compare the buildings figure against current construction costs, and add anything built or installed since.
- Walk the contents schedule against the house. Add what arrived, remove what left.
- Reprice the scheduled items whose class is due — the table above tells you which.
- Check the aggregate at each address against what the insurer agreed to accept there.
- Confirm the conditions still describe reality: occupancy, security, who lives there, whether anything is let.
- Ask, in writing, whether the proportional rule applies to this policy and with what tolerance.
The same discipline applies to a business: stock, equipment and buildings drift for identical reasons, and the rule is the same one. What differs is only how fast the figures move.
Have the insured values checked
Send the current schedule and we will tell you in writing where the figures no longer match. Within 24 hours.
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; cover, sub-limits and conditions vary by underwriter and by risk.
More on this subject: Cover for items a standard contents section will not carry · Cover for an instrument that travels and is played