There is one sentence no building manager wants to hear after a fire or a serious leak: the insurer will pay part of it. It is not a rejection or a policy trick: it is the proportional rule, set by the Insurance Law for buildings insured for less than they are worth. With inflation, it is the most common and the quietest problem in building insurance, because the policy stays in force, the premium is paid every month and nobody notices the sum fell short until there is a claim. This article explains how it works, how much it can cost and what to do to avoid it.
What underinsurance is and what the law says
A building is underinsured when the sum insured is lower than the insurable value, that is, what the property is really worth. Insurance Law 17,418 settles it in the second paragraph of article 65: if the insured value is lower than the insurable value, the insurer will only compensate the loss in the proportion between both values, unless otherwise agreed. The rule applies even to small losses: it does not matter that a claim of a few million fits comfortably within the sum insured, because what is compared is the sum insured against the total value of the building. The exception is an agreement to the contrary: some covers are taken out on a first-loss basis, under which the insurer does not apply the proportion up to the sum insured, and the policy has to say so expressly.
An example with numbers
Take a building that costs ARS 1,000 million to rebuild today and is insured against fire for ARS 600 million. A fire in the machine room and part of the hallways causes ARS 100 million of damage. Since the sum covers 60% of the insurable value, the insurer pays 60% of the loss: ARS 60 million. The association, that is, all the owners, covers the remaining ARS 40 million from the reserve fund or through an extraordinary fee set by the owners' meeting. Had the sum covered 90% of the value, the shortfall would have been ARS 10 million; at 100%, there would be none. So the useful question is not whether the loss fits within the sum, but what share of the building's value is covered.
How much a sum falls behind in a year
The most direct official reference is the Construction Cost Index that INDEC publishes every month for Greater Buenos Aires. In August 2026 the general level rose 2.5% in the month, 22.0% so far in the year and 33.2% year on year. For the policy, this means a sum that was at 100% of the replacement value in August 2025 and was never adjusted now covers about 75% (100 divided by 133.2). Under the proportional rule, that is the share of each loss the insurer would pay. With monthly increases like this year's, waiting for the annual renewal leaves several months of widening gap.
Replacement value, not market value
The fire sum insured must reflect what it costs to rebuild what is insured: structure, installations, elevators, pipes, finishes in the common areas and, if the policy includes them, the construction of the units. It has nothing to do with the sale price of the apartments, which depends on location and the market, or with the value of the land, which does not burn. There is a second point many overlook: under article 87(a) of the Insurance Law, a building is indemnified at its value at the time of the loss, unless rebuilding was agreed. That is why the policy should expressly provide for new-for-old replacement, so the calculation starts from the cost of rebuilding and not from the value of a building with years of use. To estimate the replacement value, multiply the covered square meters by an updated construction cost per square meter; for large buildings or special installations, a professional appraisal is advisable.
How often to update it and how to decide
At least at every renewal. With recent inflation it is worth adding a mid-term review and another one every time the building changes: works in the lobby, a new elevator, a party room or a pool. Some policies have an automatic adjustment clause for the sum during the term; if yours does, check its cap and compare it with the construction cost index for the period. Keeping the building insured is a legal duty of the manager (Civil and Commercial Code, article 2067(h)), and the premium for a correct sum is paid as an ordinary common expense (article 2048). Recording it in the owners' meeting minutes helps everyone understand why the premium goes up and how much it avoids losing in a claim.
Conclusion
Underinsurance does not show until there is a claim, and by then it cannot be fixed: the proportional rule applies to the sum that was in place. Prevention is simple: estimate the replacement value, agree on new-for-old replacement, track construction costs month by month and update the sum before the gap grows. If you want to know what share of your building's value the policy covers today, request a quote with the current policy and we will review it.
Related reading
Building insurance: the complete guide
What is mandatory, who pays and what the building policy does not cover, with official sources for each fact.
Read the building insurance guideFrequently asked questions
What is the proportional rule in fire insurance?
It is what the insurer applies when the property is insured for less than it is worth: it pays the loss in the same proportion as the sum insured bears to the insurable value, unless otherwise agreed (Insurance Law 17,418, article 65). If the building is insured for 60% of its value, it collects 60% of each loss.
Does underinsurance also affect small losses?
Yes. The proportion compares the sum insured with the total value of the building, not with the amount of the loss: even if the loss fits comfortably within the sum, it is paid in the resulting proportion, unless the cover was agreed on a first-loss basis.
How is a building's replacement value calculated?
It is what it would cost to rebuild it today: structure, installations and finishes, excluding the land and the market price of the units. A practical estimate is the covered square meters multiplied by an updated construction cost per square meter; for large buildings or special installations, a professional appraisal is advisable.
How often should a building association update its sum insured?
At least at every renewal and, with current inflation, also mid-term and after any works. INDEC's construction cost index rose 33.2% year on year to August 2026: a sum not adjusted for a year now covers about 75% of the replacement value.
Who pays the difference if the building was underinsured?
The association, that is, all the owners according to their share: it comes from the reserve fund, with the owners' council approval, or from an extraordinary fee set by the owners' meeting (Civil and Commercial Code, articles 2067(d) and 2048).
What share of your building's value does the policy cover today?
Request a quote with the current policy: we check the sum insured against the replacement value and compare proposals with the same sums.
Review the building's sum insured