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Don't underestimate your worth
Written by: René Jakl
Photo by: Věroslav Sixt

Unfortunately, most insured firms and households don't become acquainted with the term "underinsurance" until it's too late. For example, when an insurer pays out only CZK 80,000 in compensation for damages in the amount of CZK 320,000, even though the policy with the insurer stipulated coverage at CZK 1,000,000.

This is a classic unpleasant surprise for the insured party in cases when the insured value was greater than the insured sum," says Ludvík Bohman, director of the legal department of Česká podnikatelská pojišťovna. Translated into layman's terms: the insurance was arranged for CZK 1 million, but at the moment when the damage occurred, the total value of the firm's or household's property was CZK 4 million. According to Bohman, a situation like this arises mainly due to ignorance and/or in order to reduce premiums. Either the policy was arranged several years ago and the value of the property quadrupled during that time, or the insured party intentionally undervalued his property in his insurance policy, because he believed that he would not suffer damages in excess of CZK 1 million, so he didn't need the additional coverage. In either case the insurance is undervalued. The insured party is responsible, because the insurer set up the insurance policy on data provided to him.
"In the event of underinsurance, the insurance settlement is reduced according to the ratio of the actually paid premiums to premiums appropriate for the insured value. It does not matter if the amount of damages is within the agreed limit," Bohman explains. In the aforementioned case, from a settlement of CZK 320,000 you would receive only CZK 80,000.
Bohman sees numerous cases of underinsurance as results of generally low legal awareness, which is extremely important in the field of insurance. He says that this is due to the nature of the provided service. No sale of an actual, visible product is involved, it is rather a virtual reality transaction, with the insured party paying over the long term, seemingly for nothing. You can best avoid underinsurance by carefully reading the insurance conditions, or perhaps by consulting with your insurance agent or an insurance broker, Bohman advises.

This article was prepared in cooperation with the legal department of Česká podnikatelská pojišťovna.

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