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In accordance with § 88 of the German Insurance Contract Act (VVG), the insured value is defined as the amount that the policyholder has to pay at the time of the occurrence of the insured event for the replacement or restoration of the insured asset in its new condition, less the reduction in value resulting from the difference between old and new. Unless otherwise agreed in the building insurance contract, the insurance is therefore carried out at current value.
In practice, this form of insurance for buildings is rarely used because policyholders are normally interested in restoring the building to its original condition and the costs of restoration or replacement do not usually correspond to the current value before the insured event occurred. For this reason, most insurance contracts are based on reinstatement values or indexed new values (the predominant form of insurance today). Whereas the sum insured under insurance at reinstatement value is based on the originally incurred construction costs of the building structures, insurance at indexed new value also accounts for expected future increases in construction costs. With this form of insurance, there is usually an automatic waiver of underinsurance on the part of the insurer because it is assumed that cost increases that have occurred in the meantime have been adequately recorded and are therefore included in the insurance premium. Indexed new value is defined as the amount to be spent in the event of a claim to produce items of the same type and quality in new condition.
It is traditionally expressed as the price stated in Reichsmark as of 1914 (calculated back from today’s prices, of course). This seemingly strange procedure has various reasons, which will not be discussed in detail here, but it does not have a negative effect on the settlement of claims. The land value of the property is not taken into account in any of the procedures presented.