Overinsurance is underinsurance’s counterpart: when the sum insured sits above the real value. Here the surprise isn’t at claim time, it’s in the premium – the company pays for years toward an amount it could never actually collect.
- Property insurance pays for the loss: a higher sum insured never pays out more than the real claim.
- The typical source of overinsurance: a market-price building value and an outdated equipment list still carrying items long gone.
- The fix is the same as for underinsurance: real values, maintained every year.
Why isn’t a high sum insured a “safety margin”?
Property insurance works on an indemnity basis: the sum insured is the ceiling on the payout, but the amount is always the actual loss. If rebuilding the hall costs a given amount, a policy with double that sum insured pays out exactly the same amount – and the premium paid on the difference was money thrown away, year after year. For the part exceeding the value of the property, the agreement on the sum insured is void under the Hungarian Civil Code (Ptk.), and the premium must be reduced accordingly – this needs to be initiated with the insurer. So “padding it out” isn’t extra protection, it’s an extra cost.
Where does overinsurance come from?
Most often from the market price: a property in a prime location can have a market price far above its rebuilding cost – insuring for that means overpaying: building value done right. A second source is the dead asset list: machinery long sold or scrapped stays on the sum insured. A third is duplication: the same asset appears in two policies – an old and a new policy running in parallel, for example. A review catches all three: reviewing an existing policy.
Overinsurance has a relative: double cover, where two separate policies cover the same risk – for example, both the landlord and the tenant insure the same part of the building. Double cover doesn’t mean a double payout at claim time: if the two policies cover the same insurable interest, the insurers split the settlement between themselves; but if one of the policies isn’t backed by an insurable interest at all, that party can be left with no settlement. That’s why it’s worth clarifying, together with the lease agreement, who’s insuring what. A portfolio review catches this too.
The right middle ground
The goal isn’t the largest possible sum insured, nor the smallest, but the real one: enough that the assets can actually be replaced. The inventory and the annual check keep this maintained – the same routine protects against both over- and underinsurance: the annual review. And the premium freed up can go somewhere better: missing cover, a more sensible deductible – or it can simply stay in the company’s pocket.
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