The proportional rule is a principle that is applied in the world of Sure. when a good is undervalued or insured less than the actual value (understatement). In these cases, if a No., the insurance it shall not compensate for the total damage, but shall apply a proportion according to the relationship between the insured value and the actual value of good. This mechanism ensures that compensation is fair and proportionate to the premium paid. In this article, we will tell you everything you must know about this concept.
proportional rule
The proportional rule is regulated in the Article 30 of the Law on Insurance Contract in Spain, which establishes how the compensation in case of understatement.
The compensation is calculated using the following formula:
Compensation = Amount insured / Real value x Amount of damage
Amount insured: It is the declared value in the Policy as a maximum limit of coverage.
Actual value of the asset: It is the real or market value of the insured asset at the time of the loss.
Amount of damage: It is the economic cost of damage caused by the accident.
For example, a customer guarantees his home for 100,000 euros, but the real value of the property is 200,000 euros. In case of a fire which causes damage in the amount of EUR 50,000, the compensation would thus be calculated by applying the proportional rule:
Compensation = 100,000 / 200,000 x 50,000 = 25,000€
In this case, the insured person would receive only EUR 25,000, as he had secured the housing for half of his real value.
The proportional rule seeks ensuring equity between the parties to the insurance contract. If an asset is under-insured, the premium paid by the insured does not reflect the risk the insurance company is covering. Applying this rule ensures that the insured receive compensation in proportion to the contract coverage and avoids economic imbalance for the insurer -
To avoid unpleasant surprises in case of sinister, it is essential to ensure that the good is properly valued and to review regularly the sum secured in the policy. Thus, you will ensure that, in the event of a loss, you will receive fair and sufficient compensation.
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