Under and Over Insurance In A Recession

British readers of a “certain age” may remember cartoon TV advertisements in the 1960’s exhorting Fred to get himself fully insured and avoid the nightmare of being under-insured. 

Being under-insured can have unpleasant and unexpected consequences especially where it is difficult to value the item being insured, such as used cars or property, in an uncertain market.  When times are tough, under-insurance is a false economy as in the event of a claim you will not receive the full value of your claim, and you may not be able to afford to repair or replace your damaged property.

On the other hand, over-insurance is money wasted as you will pay a higher premium than for cover you do you not need and will not benefit from.  

All insurance policies state a “sum insured” but where this does not represent the full value of the object covered by the policy this is not necessarily the sum that will be paid out if you make a claim.

The basic law concerning insurance contracts in Spain is contained in the Law of Contracts of Insurance 50/1980.

Article 30 of Law 50/1980 provides that where an object is under-insured the insurer will only pay out in the same proportion that the sum insured actually bears to the true value object covered by the policy.  As an example, if your car is worth €10,000.00 but the sum insured under your policy is only €5,000.00 you have only insured the car for 50% of its true value.   In the event that your car is written off and you need to claim for full amount under the policy, the insurer will only be obliged to pay out in the same proportion, that is 50% of the sum insured under the policy, in other words €2,500.00.

Over-insurance, insuring an object for more than its true value, is dealt with in Article 31 of the same Law 50/1980.  In this case, when making a claim, whatever the insured value of the object under the policy, the insurer is only obliged to pay out the actual value of the object covered.  If the insurance company suspects that the excessive value was given in bad faith they can cancel the policy with no refund of the premium.

One symptom of the present economic recession is an increase in attempts at insurance fraud.  Unespa, the Spanish association of insurers, reports that during 2008 attempts at fraud on motor insurance policies by over-insurance increased by 77.9%.  Typically this involves over-insuring a vehicle and claiming for a total loss.  This association also reported an increase in 35% in false claims for fire and theft of vehicles.

Not only is insurance fraud a serious crime which can result in imprisonment but the cost of fraud is passed on to law-abiding policy holders through increased premiums generally.

Extreme Sports and other Hazardous Activities

Spring time is the cue for lots of us quite literally to take to the hills to go walking, mountain and trail biking , rock climbing, and other more extreme sports.   As the sea warms up many people decide to try new aquatic activities such as SCUBA diving or water skiing.

Under the “Regimen General” the Spanish National Health Service will not necessarily provide accident cover for injuries or illnesses which you sustain from accidents resulting from willingly participating in unusual or extreme activities, and you may have to pay for any treatment you receive even in state run medical facilities. 

If you have private medical insurance or travel insurance this may well not cover you in these situations unless you have specifically declared that you participate in a particular sport or activity and the insurer has agreed to provide cover for you sustain while participating in these activities.

The Spanish national associations for many activities will often offer accident and injury insurance cover at reasonable rates, and if taking part in courses run by schools or activity centres check what insurance cover they have for accidents and injuries.

In addition while there is a general principal that there will not usually be a charge for the cost of a rescue from a hazardous situation, this year the government of the autonomous community of Cantabria in north west Spain have introduced in their budget (Ley de Medidas Fiscales y de Contenido Financiero) for 2009 a right to charge for rescuing mountaineers or pot-holers where they have not observed a warning of severe weather or other adverse conditions.

A few euros a month for insurance cover for accident and injuries could prevent you being crippled by a large bill for medical expenses should the worst happen.