Contents Insurance valuation

In message , snipped-for-privacy@aol.com writes

No, you need to add up the replacement cost of everything, not the current value.

If the replacement costs exceed £12500 then what you would get

Yes, but there may be a separate 'fire' clause.

That doesn't seem "fairly cheap" to me, though I suppose it does depend where you are. £7/month is £84/year, that's about as much as the insurance on our flat in N. Londond costs for more contents and including buildings as well.

Our house building/contents (£500000 house, £50000+ contents) is only £232/year.

Only with new-for-old cover, surely. If you would replace stolen items with second-hand ones of equal value, then adding up the current value of everything should suffice.

I think you mean (£12500)^2/(replacement cost).

But in reality he'd get nothing, since burning the house down (even incidentally to a break-in) doesn't count as theft. :-)

Yes, I should have made that clear.

No. If the total replacement cost was £25,000 then he would get half his claim.

Ah! Of course, there was no intent to burn it down! Of course!

Remember only a small proportion of this will be for highly nickable "valuables". I have 40k of cover, despite having nowhere near 40k's worth of possessions. I do, however, have about 8k's worth of "valuables" (mainly electronic goods) which is all that's covered in that 40k.

Be careful with this, it's easy to get caught out. FWIW my Norwich Union policy's just been renewed for 9.80 a month (no accidental damage).

Andrew McP

I think you mean, for total loss, 12,500.

And for partial loss... (replacement cost of partial loss) x (12500) / (total replacement cost)

Indeed, but in the stated scenario of the house burning down, all his contents would be destroyed and so his claim would be for everything.

My point was that you gave a ratio, not an amount. You gave only Limit/(Replacement Value of Everything) whereas it should have been (Size of Claim)*Limit/(Replacement Value of Everything).

"Martin" wrote

No, if replacement cost is 25,000, then (for total loss) payout = 6,250.

This is because he would be 50% under-insured. He *should* be insured for 25,000, yet he is only getting insurance for 12,500. He *should* have been paying a premium around twice as much. So, if their is a claim, he only gets a *half* of what he would get if he had insured for the proper amount.

Think of it like this: The premium for a sum insured of 25,000 is calculated based on varying possible claim amounts between 0 and 25,000. The premium for a sum insured of 12,500 is calculated based on varying possible claim amounts between 0 and 12,500.

If you actually have 25,000 of stuff, then the amount stolen could be anywhere between 0 and 25,000. If the chances of each figure in that range is the same, then there's a 50% chance of it being below 12,500 and a 50% chance of it being above

Yes, but assuming 'new goods replace old' cover he would only get half the amount claimed. In fact he would only get half the amount claimed for ANY claim, irrespective of the total amount claimed.

Yes, it is correct. It will always be amount paid out by insco=(amount of claim*amount of cover)/(actual total value of replacing everything in one go)

Yes I didnt make it clear. BTW that raising to the power of 2 bit of yours confused me as well!

I knew it would. That's why I expressed it like that. Just to show I care.

Just to clarify - when I caclulated the cost of my contents I was adding up what I would expect to pay to buy it new now.

Oh and I wasn't thinking of commiting arson it was the only way I could think of of loosing absolutely everything

Hello Tim.... Can I have some of whatever you're on? For this is tosh. Please read my post again (in context) and then read what you've written.

If you're x% underinsured, then (mutatis mutandis) you'll get x% knocked off any insurance claim. It's not difficult.

You've even written...

So where do you get your 25% from, as in .......

(Maybe we're just getting all excited cos of RR's very rare slip)

In message , Martin writes

Actually its spot on, and I dont think I'm on hat Tim is on, but you never know.

Its half of what it was insured for, and if it was insured for half of the true value then half x half = quarter of claim.

Hey - this isn't difficult....

Assume the actual replacement cost of everything you own is 25,000.

Assume you've only insured it for 12,500 (i.e. half the correct replacement cost)

Assume you then have 12,500 at "correct replacement cost" of your stuff stolen (i.e. half).

Then insurers will pay out half of your policy total - i.e. 6,250.

But that's half of your actual loss (at replacement value) of 12,500.

In my book that's 50% of your loss, not 25%.

Precisely. That's what I said. Half = 50%, NOT 25%, as alleged by Tim

The "I think you mean (12500)^2/(replacement cost)."

That was neither inadvertent nor a slip. If the sum insured is £12500, and if he claims £12500 because that's what their (second hand) value is, yet it transpires that the full replacement cost is £25k, then he only gets half (i.e.

(Insured value = £12500)/(replacement cost = £25k) = 1/2

) of the amount claimed (which is £12500). So he gets

Writing that as (£12500)^2/(replacement cost) was just a bit of light-hearted obfuscation, yet nevertheless wholly accurate, the general expression being

(insured limit)*(claim)/(replacement cost)

but with the insured limit and claim size happening to be the same.

Good morning Ronald...

OK - I withdraw that. I should have said your (very rare) advertent unslip.

Either way, it's wrong.

Now you're doing a Troy and changing the question. Who said anything about deliberately under claiming based on second hand value when he actually has (and knows he has) a new for old policy? Sure, if you only claim half of what you're entitled to, you may end up with a smaller pay-out (although in practice I would expect the assessor would correct this). In the alternative, if it isn't a new for old policy, then he isn't uninsured and would get 100% of his claim.

So in reality (and reverting to the earlier issue), we're talking about the max you would get if underinsured, and suffered a partial or total loss.

I realised that. But your two 12500s refer to two different things (the total actually insured and the amount claimed - as you say below) therefore it will only produce the correct answer if replacement cost also happens to be 12500 - in which case he isn't underinsured.

No - except if not underinsured - as above, or (in your new "Troy" scenario) if policy holder underclaims.

Which is what I wrote originally.

But you got the claim size wrong. Claim size is total replacement cost. So payout is insured limit.

"Martin" wrote

But you can't claim for 25,000, when you only have a policy for 12,500!!

Hence, claim amount = 12,500. Also, insured amount = 12,500. But replacement cost = 25,000.

Hence payout = claim x limit / cost ... = 12,500 x 12,500 / 25,000 = 6,250.

Geddit?