To put it simply, if you insure your building for €100,000 where it should be €300,000 you would save 2/3 of the premium cost but at the same time you would only be 1/3 insured. The result is that if you make a claim your insurers will pay only one third of the amount claimed. In this example a claim for €30,000 would be settled at just €10,000, leaving you well out of pocket and probably with a grudge against the insurer, even though they have paid in proportion to what you have covered.
The question is how to be certain that you have insured for the correct amount, which we are asked all the time but a difficult one to answer because there are so many variables and it is almost impossible to be 100% precise but as long as you are reasonably accurate the averaging clause will not normally apply.
The Portuguese Insurance Institute publishes average rebuilding costs each year and for most of Algarve the current figure is a little under €800 per square metre of built area. However, as this is an average it is inevitable that certain individual properties and some areas will require higher or lower figures, and including underfloor heating will always increase the cost.
You need to take into account that this cost per square metre is only for the building itself and assumes that it is built of standard construction, but you also need to insure your boundary walls or fences, terraces, swimming pool and tennis courts plus cover costs for site clearance and professional fees. Clearly, it does not cost as much to build terraces and walls so as a general rule we would recommend increasing the cost per square metre to around €1000 for a standard build so that these elements are covered and then add allowances for site clearance, professional fees and the pool and/or tennis court – usually up to around €60,000. For properties in high value areas you may find that you need to work on up to €3,000 per square metre or more because of the higher quality of finishes – e.g. marble tiles.
Banks will always provide insurance for your home but some will insist on insuring for the purchase price paid, others will insure based solely on the Portuguese Insurance Institute published figures so excluding terraces, pools etc, and if you have a mortgage some will insure for the amount of their mortgage irrespective of the actual rebuilding cost. One bank advised a client that the kitchen units, bathroom suites, fitted wardrobes and even the windows should be included as contents! This is completely wrong and possibly a ploy to get the clients to agree to increase their contents cover which is charged at a higher premium rate.
All in all, the rebuild cost of your home is a relatively easy calculation to make and it makes sense to insure for the correct amount but if in doubt, Ibex have trained specialists who can help.
The same applies to contents insurance, although this is not as easy to determine as the value of contents will vary between houses. Even when you have a pair of semi detached houses that mirror the internal layouts, whilst the rebuild cost will be the same, the contents of each house are individual to the specific owner. One may have an average sized TV and bean bags in the lounge, the other a curved screen TV with high-end furniture costing up to €20,000 just for a single chair!
The best way to check your contents is to ask Ibex for their contents calculator sheet then go through each room noting what you have and alongside, the cost to replace them as new. You may need to make visits to furniture or other shops to check, but it is worthwhile and you could surprise yourself. It is easy to build up contents over the years without amending your contents cover, and suddenly find that you are substantially under-insured. If you have receipts for items of furniture, works of art, audio-visual equipment etc, it will make it easier to verify the correct sum to insure.
If you are only marginally under-insured, insurers will not generally apply the averaging clause, but honour the full claim on condition that the insured values are increased to the level as advised by the loss adjustor, so it can be seen that getting the level of cover as accurate as possible is good sense and healthy for your personal finances.
If you have any queries, please don't hesitate to call into one of our offices in Almancil or Tavira to get the most suitable policy to meet your needs or call us on 800 860 708 / 289 399 774 for Almancil or 281 325 842 for Tavira. Or if you prefer, send an e-mail to email@example.com