The proportional rule explains what happens when the sum insured is too low. This is about what a total loss actually costs to settle once that figure is applied correctly — because "rebuild the house" is not one number, it is several, and a loss adjuster works through them in a specific order.
What "total loss" means, before the money
A loss adjuster does not call something a total loss because the damage looks severe. The test is whether reinstatement is technically and economically viable: can the structure be safely repaired, and does repair cost less than starting again. A house with a collapsed roof and standing walls can still be a repair; a house destroyed by fire down to the foundations is a rebuild. That classification decides which of the mechanics below apply, and it is worth challenging in writing if it does not match what you are looking at — the same route covered in disputing a settlement figure applies here too.
The order a loss adjuster actually works through
- Confirm the cause of loss is covered under the policy, and check for any exclusion specific to that cause.
- Classify the loss — total or partial — on the reinstatement test above.
- Compare the building sum insured against the assessed rebuild cost. If it falls short, the proportional rule applies to the whole calculation that follows, not just to part of it.
- Price the rebuild itself: construction cost to reinstate the building to its pre-loss standard, not to improve it.
- Add demolition and debris removal.
- Add professional fees — architect, engineer, project management — that a rebuild of this kind actually requires.
- Apply VAT to the rebuild components, if the policy's sum insured basis is VAT-inclusive.
- Apply the policy excess.
- Separately, assess alternative accommodation for the period a rebuild of this scale genuinely needs.
Steps 3 through 8 are one arithmetic chain, not separate pots of money you can move between. Underinsurance discovered at step 3 reduces every euro that follows it, including the fees and the demolition cost — which is the detail people find hardest to believe until it is their claim.
Demolition and debris removal
Before anything can be rebuilt, what remains of the structure usually has to come down and be cleared. Most Portuguese multirriscos wordings include this cost, but check whether it sits inside the building sum insured — competing with the money available to actually rebuild — or as a separate sub-limit on top of it. The second is materially better for you and is worth asking about explicitly rather than assuming.
Professional fees
A rebuild of any size needs an architect's project, structural engineering where the works require it, and licensing through the câmara municipal. These fees are not incidental — on a full rebuild they are commonly a meaningful percentage of the construction cost itself, and a sum insured calculated purely on a €/m² building-cost figure, with nothing added for fees, is under-declared from the outset even before anything happens to the property. See setting the rebuild value for how to build fees into the figure at the point you set it, rather than discovering the gap at claim stage.
VAT on the rebuild
Construction work in Portugal carries IVA at the standard rate. What matters for your policy is narrower and more specific: whether the sum insured you declared, and the figure the insurer settles against, are both on the same VAT basis. A sum insured set on net construction cost, paid out against a rebuild invoice that includes VAT, falls short by the tax alone — a gap that has nothing to do with the proportional rule and stacks on top of it if underinsurance is also present.
Alternative accommodation
Most multirriscos policies include cover for temporary housing while an insured home is unfit to live in, but it is not open-ended: expect either a fixed period, a capped monthly sum, or both. That period is set against a plausible rebuild programme — not against how long a rebuild might actually take once licensing delays, contractor availability or a dispute over the figures are added in. Check the duration and the cap before you need either, and treat a rebuild that is running long as a reason to revisit the arrangement with the insurer directly rather than assuming the cover simply continues.
Rebuilding after a total loss?
Send us the loss adjuster's breakdown. We will tell you in writing which of these components it actually includes, and which it doesn't.
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; sum-insured basis, sub-limits and accommodation terms vary by policy wording and should be confirmed against your own contract.
More on this subject: Underinsurance and the proportional rule · Setting the rebuild value · Disputing a settlement figure