Your claim is for the replacement of all the stuff lost.
That is then valued - at say 25k.
Insurer then says "hey - you're not insured for 25k. You've only paid enough premium to cover your for 12.5k if you lose everything. So that's the maximum we're going to pay".
Like RR, you're imagining - wrongly - that the reduction of the claim happens twice - once by the insured cos he finds he's under-insured, and again by inscoy.
Thus in your scenario, the max payout for x% underinsured would be replacement cost times ( 1 - x% )^2, meaning if 50% underinsured, the max payout would be 25% of total replacement cost.
If you lost everything, and claimed the max covered on your policy - i..e
12.5k - ins coy are only going to be interested in whether replacement cost is less than 12.5k, not whether it's more than 12.5k.
If you're in any doubt, just read the small print in any insurance policy.
... at *second-hand* prices (RR is considering 'indemnity' cover, not 'new for old').
"Martin" wrote
Nope - RR said second-hand value = 12.5K, so that's the claim amount.
"Martin" wrote
"Martin" wrote
Rather, "So we'll only pay half of your claim amount."
"Martin" wrote
Nope, the claim amount (of 12.5K) is only reduced by half *once*.
"Martin" wrote
Only because "25% of total replacement cost", happens to equal "half of total second-hand value" in this case.
If all the items lost were brand-new, and the "second-hand" value then essentially equalled the 'replacement cost' of 25K, *then* the payout would be 12.5K. But second-hand value quoted was only 12.5K...
"Martin" wrote
No, because the premium is based on the replacement cost being the insured amount stated. If the insured amount is only half of what it should be, then any claim payout will be halved. [Just as the premium paid was half of what was required.]
Thanks for the sympathy... (sobs uncontrollably...)
He may well be - but he did a "Troy" and brought that notion into the debate. There is no "indemnity" cover in place - only new for old. On that basis, there's no eligible claim at all at all......!
But he didn't say that - at least, not until long after he had made his advertent unslip. The OP had already declared it was new for old....
Ooooh - that's sounds slightly grudging....
No. Cos (as even RR has accepted) 25k is the full replacement cost - new for old basis. The full indemnity basis cost was always assumed to be
12.5k. SO there is no underinsurance.
There is no such claim amount - unless you are saying he's only claiming for the loss of half his stuff. Why would he do that if he's lost the lot?
Here's the flaw on your argument. "But second-hand value quoted was only
12.5K..." Don't know where this was quoted (I tend to delete posts rather promptly). If policy is not new for old, and 2nd hand value is, indeed,
12.5k, then there is no under-insuranace and thus claim will be met in full, i.e. claim = payout = 12.5k.
Hey - make up your mind. It's either a new for old policy or it isn't. You seem to be saying (like RR, I suspect) that it's a new for old policy, but that the insured only wants to claim original cost. Why would he do that? Someone that thick wouldn't have insurance at all at all.
Precisely. You're there. Well done. Adn please note "half" is 50%, Not
25%.
Phew. Not half glad we've got that straight.
I'll leave you to explain it to RR :-) (Mind you, he's hot stuff on CGT & IHT, so I'm sure he'll grasp it with ease)
Damn - yes. Sorry... :-(
(Mind you, Blair is a politician, but I'm not sure he's always right....)
Nobody, but the question was answered based on the assumption, meanwhile clarified by the OP as being mistaken, that his "values" were current values instead of replacement-as-new values, and accordingly this branch of the thread has focused on that.
Fine. If he's not underinsured, there is no problem.
However, suppose for the moment that he is in fact underinsured, that his sum insured is £12500 when all his stuff is in fact worth £25k.
Now, suppose in one incident he loses stuff worth £2k, and claims £2k. The assessor determines that he is 50% underinsured and so his £2k claim will be halved and he will get £1k (minus his excess).
The Golden Rule: Whatever the size of his claim, it will be halved.
But Tim made the important point that the size of the claim can never exceed the sum insured. Are you saying this is untrue, and if so, why?
Suppose instead that he loses everything. He cannot claim £25k, and have *that* figure halved to £12k5, because his sum insured is only £12k5, so that's the most he can claim, so he does.
Going by the Golden Rule, he should therefore get no more than £6250.
Cruel and perverse though it sounds, it makes sense.
I say it's untrue. I wrote to Tim (2 or 3 posts up) "Your claim is for the replacement of all the stuff lost. That is then valued - at say 25k." IOW, it's not for the insured to scale down his claim. After all, the insured usually has the option to pay money or replace or repair. So the inital claim is for the "making good"; The cost of that is determined by the insurer (who may, though, use the isnured as agent to obtain estimates etc). This sequence of events is critical.
For further clarification, I also wrote... "If you lost everything, and claimed the max covered on your policy - i..e
12.5k - ins coy are only going to be interested in whether replacement cost is less than 12.5k, not whether it's more than 12.5k "
Remember - you don't simply claim an amount of money. In this casem you calim for eveything. And if you choose to say it's valued at the policy max, the InsCoy has no grounds (or need) to quibble - merely to satisfy themselves the claim isn't inflated.
no - he would get full 12500 sum insured (even if the actual contents were worth 1 million)
you are confused by the proportional insurance which only takes affect if he is under insured and only a 'proportion' is claimed - e.g only half his stuff is stolen/damaged and the total worth was 25K - the insurance co would quite rightly say that only half the stuff that was damaged/stolen was insured & proportion the blame accordingly
absolutely - you're not alone - i heard BBC2's 'legal eagle' make the same mistake
basically you're only covered for that which you insure - if you insure your 'whole' contents @ 5 and the 'whole' contents are destroyed/stolen then they owe you 5 - no maths - they obviously dont care if a million quids worth went up in smoke
the maths only come into play if you insure your 'whole' contents @ 5 and
50% get destroyed/stolen and you are actually found to have 40 worth of content - the insurers simply say that because your only insured quarter of your contents then 3/4 of what was destroyed wasn't insured - it's fair - ergo they only give you 25% (quarter) of your claim (pro-rata)
Then they are being over-generous! If you have 40 worth of contents insured at 5 value then 7/8 of what was destroyed was not insured so they should only pay out 12.5% )1/8) of your claim.
It doesn't make much sense to have a "no maths" rule only on the basis of whether you lose 100% of your stuff on the one hand, or *any other* amount (no matter how little less than 100%) on the other hand.
Suppose the sum insured is £10k and the stuff is actually worth £20k.
It's all very well to say that if the insured loses a tenth of his stuff (worth £2k) that he should claim £2k and get £1k.
It also seems sort of right that if you lose everything then you should get the sum insured. But I think this is only possible on the basis that there can be no rule limiting what you claim to the sum insured.
Hence, were you to lose more than half your stuff, i.e. your loss exceeded £10k, then you should claim the value of your loss *even though* that would be more than the sum insured, and then expect to get half of what you're claiming, which would therefore be automatically no more than the sum insured.
1 Why make this a question of who's right and who's wrong? Surely, it's about establishing and sharing the truth.
2 Re. your "key question", read any insurance policy and you'll see it's a limit on the max pay-out. No insurance company could guarantee that you couldn't lose more than x.
3 While reading said insurance policy, look for the word "expected". If you find it, do post back with details & context.
As I pointed out the other day, any insurance claim is at root a claim for things lost or damaged. Valuation comes later. Once you understand that, you're on your way to understanding the clarity and logic of insurance. (There are exceptions, of course - eg we have a vintage car insured for an "agreed value" - so in the event of a write-off, the "valuation" has already been made and accepted by the insurers and me - hence no haggling later; but that kind of thing is rare)
You continue to be the bee's knees on IHT/CGT though... :-)
it makes perfect sense - in fact nothing else will - i actually know jack about insurance - i only know about logic
there - you've just answered your own question
if you insure your 100,000 worth of house contents for 3000 - and the lot get nicked - the insurance company dont care - they just give you 3000 - NO maths - the only reason maths come into it is because if you get 100 worth stolen, you claim 100 (for years insurance companies paid this out at face value) - but of course it's not right, since only 3 of that was insured (the other 97 wasn't)
que?
dont know why you're making it so complicated
the payout = claim x insured value / actual value
you can 'still' apply this same formula consistently even if the whole (100%) contents are wiped-out, (try it) - it's simply that you dont need to - because it logically works out at the sum insured because that's the whooooole basis of the formula
So do I. It doesn't make sense to have a discontinuity at the 100% point. All I'm saying here is that "the maths" still has to work at the 100% point, same as at any other point.
That this involves "NO maths" is factually incorrect. It's just that in this case the answer is easier to work out, but the maths still needs to get done, i.e. £100k * £3k/£100k gives £3k.
What bit of that don't you understand? The point I'm trying to establish is whether or not the Sum Insured is an automatic ceiling on the claim you are allowed to make (before it is scaled down to account for being underinsured), as Tim claims (and I think someone else too). If he is (they are) right, it would imply that in the event of a total loss you only get a fraction of the Sum Insured, not all of it.
The formula isn't the problem. The problem is establishing over which range the formula is expected to work, specifically whether "claim" is or is not required not to exceed "insured value".
Indeed. It's not a question of who's wrong, but it'd still be nice for Tim to turn out to be wrong for a change.
Don't convince me, convince Tim.
That's not for the company to guarantee, it's the insured's lookout to ensure he's not underinsured. Nor overinsured, for that matter.
That's irrelevant. The expectation is in the mind of the claimant. If you delete the word from my sentence, its intended meaning does not change. I apologise for introducing an unnecessary word.
Me? Wrong? Surely not!! ;-) I think we may all be right, depending on what situation we are looking at ...
The Sum Insured is meant to be the "full replacement cost" of the contents. It is, *also*, a limit on any possible payout.
However, with 'indemnity' cover, you need to "make a deduction for the cost of wear and tear" ie the claim may be for 20K replacement cost, but the payout would still be reduced to (say)
12K second-hand value -- even when there is no under-insurance.
In the example we looked at before, the total replacement cost was said to be 25K. So the Sum Insured should have been 25K. But the Sum Insured was said to be
12.5K, so the contents were 50% under-insured.
Now, at the time of the claim, the (second-hand) value of the total contents were said to be 12.5K. So if there had not been any under-insurance, the claim (on total loss) would be for replacement cost of 25K, but reduced to a payout of 12.5K for 'wear & tear'.
But there was 50% under-insurance, so the payout is reduced by 50% to 6,250.
But surely since, at the time of the claim, they were only worth 25k they weren't underinsured.
The insurance company can't have it both ways, either it's 'new for old' and the contents were 'worth' (for insurance) 50k at the time of the loss or they're not providing new for old and they're insuring the actual current value of the contents.
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