Fire insurance coverage

Fire insurance coverage is the maximum amount agreed upon in a home or fire insurance policy that the insurance company will pay out in the event of a loss (fire, lightning strike, explosion). Ideally, it corresponds to the replacement cost (new construction value) of the building and should be reviewed and updated regularly to avoid underinsurance.

Calculating the Fire Insurance Sum

The fire insurance sum should correspond to the full cost of rebuilding the building to the same extent and with the same quality. The following factors are decisive:

• Living area and cubic volume of the building
• Fitting standard (basic, medium, upscale, luxurious)
• Year of construction and construction method (solid construction, wood-frame, historic building)
• Regional construction costs (higher in Bavaria than the national average)
• Special features (pool, elevator, smart home technology)

Floating replacement cost insurance: Most modern residential building insurance policies in Germany use sliding replacement cost coverage. Under this system, the sum insured is automatically adjusted annually based on the construction price index. The basis is often the 1914 value (Reichsmark), multiplied by the current adjustment factor-in 2025, this factor will be approximately 22-24 (depending on the insurer).

Calculation Example:

Parameter	Value
Living area	150 m²
Standard of finish	Medium
Construction value 1914	approx. 50 units/m²
Factor 2025	approx. 23
Sum insured	150 × 50 × 23 = €172,500 (simplified)

Actual calculations are more complex and are determined individually by insurers.

Underinsurance and its consequences

Underinsurance occurs when the agreed sum insured is lower than the actual replacement value. In the event of a claim, the insurance company will then only pay a proportionate amount:

Example: New construction value of the building: €500,000, insured sum: €350,000 (70%). In the event of fire damage amounting to €200,000, the insurance company pays only 70% = €140,000.

Causes of underinsurance:

• Insurance coverage originally set too low
• Failure to adjust coverage after renovation, addition, or modernization
• Insufficient index clause in the contract

Need for adjustment following modernization measures

One of the most common causes of underinsurance is the failure to adjust the sum insured following value-enhancing measures. The following alterations increase the replacement value and should be reported to the insurance company:

Attic conversion: A converted attic with additional living space significantly increases the building’s value. The sum insured must be adjusted by the value of the new living space.

Addition or expansion: Any expansion of the usable floor area increases the new construction value and thus the insurance coverage required.

High-end features: Installation of a swimming pool, a sauna, a photovoltaic system (permanently mounted on the roof), underfloor heating, or high-end bathroom fixtures-all of these increase the replacement value.

Facade renovation with high-quality materials: If a facade is renovated with expensive clinker bricks, natural stone, or special plaster, the value exceeds the standard rate.

Heating system replacement: Installing a heat pump with a geothermal probe, a pellet heating system, or a solar system can increase the new construction value by 15,000 to 40,000 euros.

Reporting these changes to the insurer is usually straightforward-a brief letter or a phone call to the insurance advisor is sufficient. The premium increases accordingly, but the protection against underinsurance is worth it.

Special Considerations for Historic Buildings

For buildings designated as historic landmarks, the replacement value can be significantly higher than the new construction value of a comparable modern building. The reason: historic materials (natural stone, sandstone, historic bricks), traditional craftsmanship techniques, and requirements mandated by historic preservation laws make restoration considerably more expensive.

For historic properties in Nuremberg (Old Town, Wilhelminian-style buildings with historic status, half-timbered houses in Franconian town centers), we recommend having the replacement value determined by an expert appraisal rather than relying on standard formulas. Many insurance companies offer special rates for historic properties that account for the increased restoration costs.

Practical Tip for Property Owners in Nuremberg and Franconia

We recommend that every residential property owner in Nuremberg and the metropolitan region immediately adjust their fire insurance coverage following major renovation or modernization projects (attic conversion, addition, heat pump, high-end kitchen). Construction costs in the Nuremberg metropolitan area have risen significantly in recent years-a new building today can easily cost 3,000 to 4,500 euros per square meter.

Many older policies do not reflect these values. Use the annual premium as an opportunity to ask your insurance advisor to review your coverage amount. If your building is a listed historic structure, we strongly recommend obtaining an expert appraisal of the restoration value-insurance companies’ standard calculations often do not adequately account for the increased costs associated with historic materials and traditional craftsmanship.

Frequently Asked Questions

Is fire insurance required by law?

For private individuals, home insurance (which includes fire insurance) is not legally required in Germany-with a few historical exceptions. However, banks require it as a condition for granting a loan and typically act as beneficiaries in the event of a claim. When purchasing a property, the existing home insurance policy should be reviewed immediately after the transfer of ownership and adjusted if necessary.

What is the difference between fire insurance and home insurance?

Fire insurance is the oldest form and covers only damage caused by fire, lightning, and explosion. Modern home insurance additionally covers water damage from pipes, storm and hail damage, and often other risks (natural hazards coverage is optional). Today, almost all insurers offer combined home insurance policies-pure fire insurance is hardly available in Germany anymore.

How often should I review the fire insurance coverage amount?

We recommend a review every 3 to 5 years, as well as after any structural work that increases the value of the building. Many insurers offer free reviews-be sure to take advantage of this offer. In the event of significant increases in construction costs (such as in the years 2021-2023, with some increases of 15% per year), an annual review may also be advisable.

What is an “underinsurance waiver” and when does it make sense?

An underinsurance waiver is an optional clause in home insurance under which the insurer waives the right to apply a proportional reduction in the event of a claim-even if the sum insured is too low. This clause offers additional security but requires that the policyholder has correctly stated the sum insured to the best of their knowledge. We particularly recommend this add-on for older buildings and historic properties, where an exact valuation is difficult to determine.

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