How to read a Portuguese insurance policy

The three words that decide the outcome

A policy runs to dozens of pages, but most of the questions people ask after a loss come down to three numbers: the sum insured, the premium and the deductible. It is worth finding them before you need them.

The starting point is that none of the three is set by law. Article 49(3) of Decreto-Lei 72/2008 lets the parties set deductibles, indemnity tiers and other contractual terms that condition what the insurer pays. The law organises the contract; the figures belong to the contract.

Sum insured: the ceiling

The sum insured is the most the insurer undertakes to pay. Above it, the loss is yours, however well documented.

There is a duty here that surprises people. Article 49(2) provides that, except where the law determines otherwise, it falls to the policyholder to tell the insurer the value of the property, right or estate the contract relates to, at inception or during the contract, for the purpose of setting the sum insured. The insurer is not going to value your house on its own initiative: the figure in the policy is, as a rule, the one you declared.

When the sum insured sits below what the property is actually worth, the problem is no longer the deductible but under-insurance, a situation with rules of its own, which the Insurance Contract Act handles in a separate article.

Premium: the price of cover

The premium is what you pay so that the cover exists. It is not savings and not a deposit: there is no refund for a claim-free year, and a higher premium does not in itself mean a larger payout.

What the premium reflects is the risk the insurer accepts and the covers you bought. Two contracts with similar premiums can behave very differently in a claim if their sums insured or deductibles differ.

Missing a premium is not a late payment: it ends the contract

This is the part of a policy most people discover too late. Article 61 of Decreto-Lei 72/2008 provides no grace period, and the consequences are automatic:

"1. Failure to pay the initial premium, or its first instalment, on the due date causes the automatic termination of the contract from the date it was entered into."

Note the last part. The contract does not end on the day the payment was missed: it is treated as terminated from inception. Someone who never paid the first premium was never covered, not even for the days that passed in between.

For later years the rule differs but is equally dry: paragraph 2 says non-payment "prevents the contract from being extended", so the policy simply does not renew. Paragraph 3 adds that failing to pay an instalment during the year causes automatic termination on that instalment's due date.

There is one exception worth knowing. If what went unpaid was an additional premium arising from a change to the contract, paragraph 4 provides that it is the change that fails, with the contract surviving "with the scope and on the terms in force before the intended modification". The old policy stands; what does not take effect is the amendment.

Deductible: the part that stays with you

The deductible is the share of the loss that is not paid to you. It appears in three shapes, and the last two require arithmetic:

• a fixed amount in euros;
• a percentage of the sum insured, common in home multirriscos cover;
• a percentage of the loss, common in own-damage motor cover, almost always with a minimum.

The minimum causes half the confusion. Under a clause reading "10 % subject to a minimum of 250 EUR", an 1 800 EUR loss does not produce a 180 EUR deductible: it produces 250 EUR, because the minimum prevails.

The distinction that changes everything

There are two species of deductible, and policies are not always explicit about which one you bought.

A deductible proper is subtracted from every claim. On a 1 000 EUR loss with a 250 EUR deductible, you receive 750 EUR.

A threshold deductible, also called simple, is only a floor. Below it the insurer pays nothing; from it upwards the insurer pays the loss in full. On the same example, you receive 1 000 EUR.

Same loss, same deductible, 250 EUR apart. That is why mental arithmetic rarely lands on the right figure, and why the deductible calculator exists.

Where to find each thing

A policy comes, as a rule, in three layers:

• General Conditions: the definitions and, above all, the exclusions. This is where it is decided whether what happened to you is a covered loss at all.
• Special Conditions: the rules for any optional covers you bought.
• Particular Conditions: your figures: sum insured, premium, deductibles, and the people and property named.

The temptation is to read only the third, because it is short and carries the numbers. It is also the one that explains least about why a claim might be refused.

Who is who in the contract

Three roles the policy separates and everyday conversation merges:

• the policyholder enters into the contract and pays the premium;
• the insured person is the one whose risk is covered;
• the beneficiary is the one who receives the payment.

In a life policy tied to a mortgage, for example, all three can be different parties. Confirming which one you are avoids finding out at the worst moment.