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What is reinstatement value?

Reinstatement value means costs incurred for acquisition of property equivalent to the property which has been damaged as a result of a loss event.  If the depreciation of the building is less than 50%, the building must be insured pursuant to the reinstatement value principle. The reinstatement value is the building's building cost plus clearing expenses.

I plan on taking a housing loan and I have to enter into an insurance contract with regard to the collateral. How large should the sum insured be?

Although upon issuing a loan the lender identifies the market value (the amount that could be received upon sale of the collateral property), the reinstatement value (building cost) has to be specified as the sum insured. The land where the building is located, the location of the object, the attractiveness of the object, etc. is taken into account upon determining the market value, but these criteria do not affect the reinstatement value of the building. For instance, the market value of the same house would be 3.5 million Estonian kroons in Tallinn and 1.5 million Estonian kroons in Viljandi, but the reinstatement value would be 1.1 million Estonian kroons both in Tallinn and Viljandi.

What is the difference between comprehensive insurance and all-risks insurance?

Comprehensive insurance is a product covering specified risks such as damage caused by fire, lightning, explosion, storm, burglary and robbery, intentional destruction of property and pipe leakage. All-risks insurance covers property damage caused by a sudden and unforeseen event. In the case of all-risk insurance all specified risks are covered plus the damage caused as a result of other sudden and unforeseen events (a fall, overvoltage, other water damage in addition to a pipe leakage, etc.).

What is the construction price index?

A coefficient calculated by the Estonian Statistical Office, which is based on price rises in the Estonian construction market (labour costs, building materials, transport, etc.). Upon determining the construction price index, the changes in the Estonian construction market are compared with the same period last year. Construction price indices are located on the website of the Estonian Statistical Office at http://pub.stat.ee.

How to assess losses in the case of all-risks insurance?

The following questions might be of help upon identification of losses in the case of all-risks insurance.

• What caused the loss?
• Was the reason for the loss short-term or sudden?
• Was the situation preceding the loss such that the given reason for the loss was unforeseen and unexpected?
• How would a prudent owner of the property have acted in the given situation? Could the loss event have been avoided?

Example. The hose of a vacuum cleaner hit a vase that was on a table and the vase fell on the floor and broke.

Answers to the above question.

• The reason for the loss lay in hitting the vase with the vacuum cleaner hose.
• Was the reason for the loss sudden?
• Upon starting cleaning it could not be foreseen than the vacuum cleaner hose will hit this vase.
• Even in the course of careful vacuuming something may break.

 Decision. Breaking the vase is loss caused by an unforeseen event and it is subject to indemnification under all-risks insurance.

Upon analysing the loss in the case of all-risks insurance it is important that the event causing the loss was sudden and unforeseen. It is not characteristic of all-risks insurance if an injured person suddenly finds that his or her property has been damaged. Loss is not defined based on how surprised the injured party was, how quickly he or she detected the loss or how quickly he or she reacted to it. As mentioned, it is important to identify the reason for the loss and to assess how sudden and unexpected it was.