Calculate contents insurance: How to determine the right coverage amount
The correct sum insured for your contents insurance is determined by the replacement value of your entire inventory. If you underestimate the value, you risk reductions for every claim, including partial losses. Learn step-by-step here how to determine the correct sum and which mistakes you should avoid.
- The sum insured should correspond to the current replacement value of the inventory, not the old actual cash value. What matters is what the equipment would cost today.
- Underinsurance leads to a proportional reduction in claim payments, even in the case of partial losses.
- Create an inventory list, value all items at replacement cost, and include a 15 to 20 percent buffer.
- A business that was correctly insured in 2018 is, in many cases, 40 to 60 percent underinsured today due to inflation and new acquisitions, often without even realizing it.
- For complex businesses such as manufacturing, warehousing, or medical practices, a professional valuation is worthwhile. Specialized insurance brokers will not only assess the value of the inventory but also examine the typical risks associated with the respective industry.
Replacement value vs. actual cash value: What is the difference?
You should always calculate the sum insured based on the replacement value. Replacement value means: what would it cost today to buy the same or an equivalent device, piece of furniture, or item of stock new? Actual cash value is the current market value after deducting for age and wear and tear.
In our consultations, we frequently hear: "But the equipment is already old." This is precisely what often becomes a problem in the event of a claim. If a machine costs 40,000 euros today, an old actual cash value doesn't help much. An actual cash value policy might only cover 15,000 euros. With replacement cost coverage, however, the full 40,000 euros are provided for the replacement.
Replacement value coverage is standard in most commercial policies. Even so, always double-check which basis the policy uses when you sign up.
How to calculate your sum insured correctly
The sum insured should correspond to the current replacement value of your inventory. What matters is not what you paid in the past, but what it would cost to replace your furnishings, machinery, IT equipment, goods, and stock today.
You can get a rough estimate by checking which furnishings, machinery, IT equipment, goods, and other assets would need to be purchased new today. Be sure to also include leased equipment, customer property, and easily overlooked items like tools, packaging materials, or outdoor furniture.
Calculate contents insurance?
In practice, this is often difficult to estimate. Many businesses do not have an up-to-date inventory list, are constantly purchasing new equipment, or are unsure which assets should actually be included in their contents insurance. Especially in hospitality, medical practices, retail, warehousing, or production, the sum can easily be set incorrectly. An additional buffer of 15 to 20 percent helps absorb price increases, new acquisitions, and overlooked items.
Specialized advice helps you avoid common mistakes in estimating current values and inventory, as well as preventing underinsurance.
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Business interruption – the underestimated risk
The actual property damage is often not the biggest problem. The period that follows is what really gets expensive. If a restaurant has to close for several months after a fire, or a medical practice cannot treat patients after water damage, rent, salaries, leasing installments, and other fixed costs continue to accrue regardless.
That is exactly what business interruption insurance is for. It replaces lost income and covers ongoing costs while the business is at a standstill.
However, many businesses are incorrectly insured in this regard.
Business interruption coverage is often simply set at the same level as contents insurance. In sectors like hospitality, retail, medical practices, or services, this is frequently insufficient because these businesses generate high revenue with relatively little inventory.
Following a fire, a restaurant remained closed for about two and a half months. Renovations and new equipment cost around 100,000 euros. The additional loss of earnings amounted to another 70,000 euros.
That is why business interruption should always be assessed separately and calculated based on the actual annual gross profit.
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What happens in the event of underinsurance?
Underinsurance occurs when the agreed sum insured is lower than the actual value of the inventory. In the event of a claim, the insurer will reduce the payment proportionally according to the following formula:
Payout = (sum insured ÷ actual value) × loss amount
If you only insure 60 percent of your inventory, you will only be reimbursed for 60 percent of the loss in the event of a claim. This applies to partial losses as well, not just total loss. Three practical examples:
Hair salon
- Actual value: 60,000 euros
- Sum insured: 30,000 euros
- Loss: 20,000 euros
- Payout: 10,000 euros
- Deductible: 10,000 euros
Carpentry workshop
- Actual value: 120,000 euros
- Sum insured: 60,000 euros
- Loss: 120,000 euros
- Payout: 60,000 euros
- Deductible: 60,000 euros
IT office
- Actual value: 45,000 euros
- Sum insured: 25,000 euros
- Loss: 15,000 euros
- Payout: 8,333 euros
- Deductible: €6,667
Businesses that have not adjusted their coverage since they were founded are often 40 to 60 percent underinsured today. Underinsurance is rarely intentional; it happens over time: new acquisitions go unreported, inflation increases replacement values, and the policy is never updated.
Note on waiver of underinsurance: Many modern policies include a clause that waives proportional reduction and pays the full loss up to the insured sum. This requires an accurate valuation at the time the contract is signed. When comparing policies, it is worth asking specifically about this clause.
What does underinsurance cost in an emergency?
Underinsurance often only comes to light when a claim is filed. Suddenly, the exact funds needed for repairs, new purchases, or ongoing operations are missing. This becomes particularly critical if a prolonged business interruption occurs as well.
A restaurant fire caused €100,000 in property damage plus €70,000 in business interruption costs due to a 2.5-month shutdown. A supermarket fire led to €2,000,000 in repair costs. A broken-into safe containing €26,000 in cash was fully reimbursed because the policy had been adjusted to €50,000 in time. Many standard policies only cover €10,000.
When is a professional valuation of the sum insured worthwhile?
For simple offices or small shops, a careful inventory list is sufficient. For more complex businesses, external support is recommended.
It is particularly useful for:
- Manufacturing businesses with machinery and systems
- Medical practices with expensive technical equipment
- Catering businesses with refrigerated goods and specialized equipment
- Businesses that have grown significantly since their last contract renewal
An insurance broker doesn't just check the amount; they also review the contractual obligations.
Some insurers will only pay out for a burglary if the cylinder locks protrude no more than 4 millimeters from the strike plate. If you aren't aware of this, you could be left empty-handed in the event of a claim, despite having an active policy.
Conclusion: Why the right coverage amount is no minor detail
Calculating your coverage amount is not a one-time task at the start of a contract, but an ongoing responsibility. The greatest risks arise from:
- Coverage amounts that are too low due to outdated inventory values
- Missing or incorrectly calculated business interruption coverage
- Obligations in the fine print that can lead to reduced payouts in an emergency
This is exactly why ongoing support is so valuable. A specialized insurance broker regularly reviews coverage amounts, accounts for changes in your business, and helps you avoid common mistakes and underinsurance.
You can find details on benefits, exclusions, and policy modules in our comprehensive guide to commercial contents insurance.
An online calculator can provide a rough starting point. However, it is not sufficient for robust coverage because it neither knows your actual inventory value nor evaluates the specific terms of the policy.
VersicherungsEngel connects you with brokers specialized in your industry, ensuring that your coverage amount is not only correct at the time of signing but also reliable in the event of a claim.
Request a personal consultation now and have your coverage reviewed to see how it really stacks up.
Lion Dahlenburg is the Managing Director of VersicherungsEngel and has been at home in the insurance industry for over eight years. His focus areas include commercial insurance, risk management, sales strategies, and the digitalization of the industry. These topics have been central to his career from the start, beginning with four years at Allianz, followed by his role in building a Berlin-based InsurTech for digital commercial insurance, where he established and led sales and customer service from the ground up.
During this time, he has personally acquired and supported over 1,000 corporate clients—a wealth of experience that informs his work today. With VersicherungsEngel, he and his team help around 2,000 companies every month find the right contact for their insurance and coverage needs. As an industry expert, he has been quoted as an interviewee by publications including the trade journal Versicherungswirtschaft heute.
Lion’s professional expertise is built on a degree in Business Administration with a focus on insurance, a Master’s degree in Business Consulting & Digital Management, and several IHK certifications in insurance, financial investments, and real estate loans.
Qualifications at a glance:
- B.A. in Business Administration (specializing in insurance) and a Master's degree in Business Consulting & Digital Management
- IHK-certified insurance specialist, financial investment specialist, and real estate loan broker
- Over 650 positive reviews on Trustpilot, Google, and eKomi, as well as more than 3,500 LinkedIn followers