Setting the sum insured on an owned home to avoid underinsurance (infraseguro)

Terms used

• Infraseguro — Infraseguro is underinsurance: your sum insured is lower than the real value of what you insure.
• Regla proporcional — The regla proporcional lets the insurer cut a payout in the same proportion as your sum insured falls short of the real value.
• Primer riesgo — Primer riesgo is first-risk cover, which pays a loss in full up to the sum insured without applying the proportional cut.
• Valor a nuevo — Valor a nuevo is the cost of rebuilding or replacing an item as new, with no deduction for age or wear.
• Valor real — Valor real is the replacement cost minus a deduction for age, use and obsolescence, so it pays less.

Key rules

• Sum insured: Declare the real rebuild cost of the building and a realistic replacement value for the contents.
• Land: Leave the land out of the building figure, since only the cost of rebuilding counts.
• Contents: A room-by-room inventory protects you better than a quick benchmark.
• Over-insuring: Insuring above the real value never pays more than the actual loss.

Rebuild costs per square metre change with region and year, so check the building figure with your insurer or an architect before you sign.

Insure the real rebuild cost, not the purchase price

Declare what it would cost to rebuild your home and replace your belongings today. If the amount you declare is lower than the real value, the insurer cuts every payout, even small ones. This is called infraseguro, or underinsurance.

How the cut works

Under the regla proporcional, the insurer pays only the same proportion of the loss as your sum insured bears to the real value. A home worth 200,000 euros insured for 150,000 euros is covered for 75 percent. On a 10,000 euro loss, it pays 7,500 euros. You cover the rest.

The insurer cannot apply the rule if your sum insured equals or exceeds the real value. Two exceptions exist: a policy written on primer riesgo terms (first-risk cover, which pays losses up to the sum insured), and a policy where you and the insurer agreed to waive the rule. Look for either in the policy wording before you rely on it.

Building: use rebuild cost

• The value that counts is what it costs to rebuild, not what you paid or what the land is worth. Land does not burn down, so it is not part of the figure.
• Rebuild costs per square metre rise with build quality. An apartment or standard home costs less than a detached house or a high-end villa. They also vary by region and rise with construction inflation.
• Insurers' online calculators and architects' associations use these bands. Use the calculator below as a starting point, then check the result against your home's size and finish.
• Review the figure every year or two, since building costs move.

Contents: pick a method

• Quick benchmark. Insurers propose a sum based on home size or number of rooms. It is fast but rough.
• Room-by-room inventory. List furniture, appliances, electronics, clothing, kitchenware and valuables at what it would cost to replace each one. The total is your sum insured. It takes an hour or two, and it is the better protection against the regla proporcional.

Take photos or video of each room and keep them somewhere other than the home. They help prove what you owned.

Valor a nuevo or valor real

Valor a nuevo pays the cost of replacing the item as new, with no deduction for age. Valor real deducts depreciation for age, use and obsolescence, so it pays less. Buildings are normally insured at valor a nuevo. Contents often are too, but older items, electronics and sometimes furniture may be settled at valor real once they pass an age limit in the policy. Some policies pay valor a nuevo only after you have actually replaced the item. Ask which applies to each part of your cover.

Do not over-insure

A sum above the real value does not pay more. The insurer pays no more than the actual loss, and you pay premium for cover you cannot use.

Before you sign

1. Work out the building rebuild cost and the contents total.
2. Ask whether the policy uses valor a nuevo, and for which items.
3. Check the wording for any waiver of the proportional rule or first-risk cover.
4. Check the traps box below for other clauses that can reduce a payout.

Home policy traps in underinsurance, empty-home and security clauses

Three clauses that most often cut your payout

• Underinsurance: If the sum insured is lower than the real value of the building or contents when the loss happens, the insurer pays only part of every claim, even a small one. Set the capital with the rebuilding cost and a room-by-room contents list. Ask whether the policy is on first-risk (primer riesgo) terms, which skips this reduction. The sum insured article explains how the reduction works.

• Empty-home or absence clause: Many policies limit theft cover once the home has been empty for more than 30 to 90 consecutive days. Damage while the home is unoccupied is also a common exclusion. Find the number of days in your policy before you travel or leave a second home. Ask the insurer in writing what cover applies during longer absences.

• Security conditions on theft: Theft cover often needs a reinforced door, working locks and bars or shutters on ground-floor windows, plus an alarm for valuables or second homes. It usually pays only after forced entry, and a claim can be cut or refused if doors and windows were not properly closed. Check the security list in your policy and fit what it asks for. Always lock and close every door and window when you leave.

Sum insured calculator for your home and contents

Work it out

What you enter

• Built floor area of your home (m2): Your escritura (title deed), the nota simple or the property tax bill.
• Rebuilding cost per square metre for your type of home (EUR): Your insurer's online calculator or the cost guide of your local architects' association, for your build type and region.
• Replacement cost of your belongings, room by room (EUR): Your own room-by-room list of furniture, appliances, electronics, clothing and kitchenware, priced as new.
• Value of items to declare one by one (jewellery, art, collections) (EUR): Your receipts or a valuation for each item that is worth more than the policy's cap.

Worked example (with Built floor area of your home 90 m2, Rebuilding cost per square metre for your type of home 1,400 EUR, Replacement cost of your belongings, room by room 25,000 EUR, Value of items to declare one by one (jewellery, art, collections) 6,000 EUR)

When the sum misleads

• Use the rebuilding cost, not the market price or the purchase price of the home.
• If you are in a flat, ask whether the community of owners' policy already covers the shared structure, and enter only your own part.
• Items worth more than the policy's cap must be listed one by one with a description and value, and a valuation is often asked for; otherwise they are paid only up to the cap.
• Redo the sum every year or after a reform, as building costs rise.

Frequently asked questions

Can the insurer ignore underinsurance when it settles a claim?

Yes, the insurer cannot reduce your payout for underinsurance if your policy is on first-risk terms (primer riesgo) or if the parties agreed to waive the rule. Check your policy wording for either term. If the sum insured is equal to or above the real value, the insurer cannot apply the reduction at all.

What is the difference between valor a nuevo and valor real?

Valor a nuevo is the cost of rebuilding or replacing something as new, while valor real is that cost minus a deduction for age, use and wear.

How do I work out a sum insured for my contents?

The most accurate way is to list furniture, appliances, electronics, clothing, kitchenware and valuables room by room at replacement cost, then add up the total. A quicker option is an insurer's online calculator, which suggests a sum from your home size and who lives there. The inventory is better protection against a reduced payout.

Does a higher sum insured than my home's value pay more?

No, a sum insured above the real value does not pay more, because the insurer pays no more than the actual loss. You would only pay extra premium for cover you cannot use. Aim for a realistic rebuild value instead.