What is and what is the Proportional rule in Insurance?

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If you have had or have a claim, it is important that you know that the compensation you will receive from your company is not random. Different criteria and variables will be taken into account according to the policy you have contracted. In other words, the insurer will compensate you fairly, assessing the damages that have occurred and based on the capital insured in your policy.

The proportional rule is the formula that the insurer can apply to calculate the compensation to the beneficiary of the insurance policy in the event of a partial loss when the insured sum is less than the real value of the insured object; that is, when underinsurance occurs. This rule applies when a claim has occurred and after an appraisal of the damage caused to the insured risk, the insurer perceives and demonstrates that the value of the declared insured assets exceeds that reflected in the capital of the policy and the premium paid, resulting in what is technically known as underinsurance. That is, the real value of the insured object appraised by the experts is less than the real value and the declared value in the policy is less or less than that of the goods.

Insurance Contract Law 1980 regarding the proportional rule

Law of the Insurance Contract of 1980, informs in its article 10: The policyholder has the duty, before the conclusion of the contract, to declare to the insurer, according to the questionnaire that he submits, all the circumstances known to him that may influence the risk assessment. You will be exonerated from this duty if the insurer does not submit a questionnaire or when, even if it is submitted, there are circumstances that may influence the risk assessment and that are not included in it.

The insurer may terminate the contract by means of a statement addressed to the policyholder within a period of one month, from the knowledge of the reservation or inaccuracy of the policyholder. . Unless there is intent or gross negligence on their part, the premiums relating to the current period at the time of making this declaration will correspond to the insurer.

If the loss occurs before the insurer makes the statement referred to in the preceding paragraph, the benefit of the latter will be reduced proportionally to the difference between the agreed premium and the one that would have been applied if the true entity of the risk had been known. If intent or gross negligence of the policyholder was involved, the insurer will be released from the payment of the benefit.

Article. 30:

If, at the time of the loss, the insured sum is less than the value of the interest, the insurer will compensate the damage caused in the same proportion in which it covers the insured interest. . The parties, by mutual agreement, may exclude in the policy, or after the conclusion of the contract, the application of the proportional rule provided in the preceding paragraph.

The formula of applying the proportional rule

Then, and in accordance with what is described in article 10 of the insurance contract law, the following formula is applied to calculate the compensation: the insured amount (for example, 100,000 euros) is multiplied by the value of the damages (say, 25,000 euros) and the result is divided by the real value of the insured assets (consider that it amounts to 200,000 euros). For practical purposes, in this way, the user will receive 50% of the damages as compensation. Applying the proportional rule, a compensation of 12,500 euros will be received. In addition to this formula, the Law establishes that compensation can be calculated

on the proportional difference between the premium paid (150 euros in the example in question) and the one that we would have had to pay (300 euros) if we had taken out our home insurance for the real value of the insured assets.

Taking care of your assets can involve heavy investments. Hiring good insurance is a good decision and nowadays, essential, since you never know when you will have to face problems, some of them serious, that entail great expenses. Euroteide Seguros, (Asesores de Seguros) is always at your side when hiring the insurance you need.

If, when there is a claim, the insured sum is less than the value of the insured interest, the insurer will compensate the damage caused in the same proportion in which it covers the insured interest. Both parties and by mutual agreement may exclude the proportional rule.

Be careful because if the insurance company shows that there was intent or gross negligence of the policyholder when declaring the assets that were part of the insured sum, it can free itself from the obligation to compensate in the event of a claim.

Let’s look at an example. If when you know the insurance premium, if the future insured, consciously obvious not to value certain assets to obtain a cheaper premium, he will incur underinsurance (he is not really insuring all the risk he incurs), and in the event of a claim, he can be “penalized” by the insurer when compensating you (or be without compensation if it is proven that there was intent or gross negligence).

There are times that influenced by the desire to obtain a cheaper insurance premium, we incur underinsurance“I do not declare that I have these things”, but when the claim occurs the insurer reserves the right to apply the proportional rule to us.
Every time there is a claim with underinsurance the insurer will resort to the proportional rule, which is part of the insurance conditions. In other words, underinsurance and the proportional rule go together when a claim occurs.

How to avoid and not incur underinsurance

 The simplest way to avoid underinsurance in Insurance whose basis is a “declaration of the value to be insured” by the Policyholder or our part; is to have accurate and fair information, for example, the model or accessories of a car, value of the container and content of a home in home insurance, etc.) We insist that it is very important to review and correctly evaluate the value of the insured sums of In such a way that the fair premium is paid, and also that, in the event of a claim, we are compensated for the expected total and the proportional rule does not apply. If you are not an expert when it comes to appraising property in Euroteide Seguros (Insurance Advisors) we will help you to appraise correctly and have the real value of the insured sums without incurring underinsurance or supra insurance and not suffering what the application of the proportional rule by the insurer.

It is important once an Insurance is in force, periodically review the insured sums and if we have evidence that the value of our assets has changed (higher), it is good to notify your Agent or Insurance broker of the new situation as soon as possible. If we do so, even if we have to pay a small additional premium, we will always be well insured and free from headaches in the event of a serious loss.

The Law of the Insurance Contract informs in its article 11 in this sense is forceful:

The policyholder or the insured must, during the term of the contract, notify the insurer, as soon as possible, of the alteration of the factors and circumstances declared in the questionnaire provided for in the previous article that aggravates the risk and is of such a nature. that if they had been known to him at the time the contract was perfected he would not have entered into it or would have concluded it under more burdensome conditions.

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