wrote
They "should" have been insured for 25K, but were actually insured for only 12.5K.
So they *were* under-insured.
wrote
They don't!
wrote
Nope, *not* 'new for old'...
wrote
Exactly - not insuring "new for old", but instead it's an "indemnity" policy. So any payout is reduced for wear & tear.
But the Sum Insured should still be full Replacement Cost - that's why the premium is lower for indemnity!
Yes - but (in your 13:35 today post) you are describing a new scenario which (a) never pertains in real life, and (b) wasn't part of the "real life" scenario earlier in the thread.
You refer to "full replacement cost" and "total replacement cost" - but neither of these refers exclusively to "new for old" policies. E.g. my car insurers require me to state (or estimate) "replacement cost" - but that's loads less than the current brand new price. Similarly with household contents.
If a policy is not new-for-old, the insured will not be asked to estimate, nor pay a premium based upon, the "new-for-old" value, Rather, it will be the reinstatement cost - i.e. to re-purchase second hand (or commonly, the claimant re-buys new, but adds some cash herself). Or, if you prefer, the cover provided is for the original price less a deduction for age, wear and tear etc., that deduction being established at inception, not at the time of any loss (other than for verification, where possible, of course)
Thus, when you wrote.... "However, with 'indemnity' cover, you need to "make a deduction for the cost of wear and tear"..." the deduction is also (and crucially) made when calculating the insured value at inception. It's necessary so the insurer's know their true exposure and can calculate the premium.
Having done all that, any subsequent claim is only pegged back to the extent of under-insurance in relation to the value of cover purchased.
Do you feel converted...? :-)
Tim - with respect, this is where you are still going wrong. "Full Replacement Cost" is NOT the new-for-old value - it's the old-for-old value.
"Martin" wrote
Rubbish! How do you expect the prospective policyholder, at inception, to determine *when* in the future the claim will occur, and what the future second-hand *value* of the items will be at that time?
No - the deduction is actually made
**on the claim form**, not at inception."Martin" wrote
Nah - the insurers are much cleverer than you must imagine!
"Martin" wrote
Certainly not. Do you? ;-)
Surely not. Although I'm not quite sure what you mean by "full Replacement Cost".
If I insure the contents of my house I insure for what I estimate the contents are worth now.
It's not rubbish. Because (a) you won't get insurance without declaring a value, (b) the insured has to review the figure every year - and usually notify any significant changes to sum insured during the year. How do you think the vast majority of people cope, who are on new-for-old - do you really think they go and check the price of everything every year?
That is simply wrong. Deduction from what? The reality, as I've set out several times in this thread, is you claim for the replacement or reinstatement of the lost thing. The insurers may agree a figure with you by post or phone, or they may elect to send an assessor. That's when the value gets determined - not by filling in the claim form.
There's loads of stuff on the web which disproves your theory, but as an example (sorry I can't be bothered to find a better one) have a look at
So what do you suppose the premiums are based on? Post code alone? Tell you what - if you can get a premium quote from anyone without stating the sum to be insured, I'll concede.
Why don't you see if you can find an "old-for-old" insurance application form, and see what it asks you to enter for "sum insured"
Nope... you're wrong, I'm right (gosh - RR could have written that... :-)
That's part of the problem in making sense of much of this thread. I think Tim means the cost of replacing with new stuff at today's prices. For a new-for-old policy, that is what you set as your sum insured (usually with a slight reduction re. clothing because that generally suffers a "wear and tear" / "depreciation" adjustment if it comes to a pay out.
That's correct - assuming your policy is "old-for-old", aka "indemnity".
Personally, however, I would never go near such a policy for household contents. "New for old" is the norm these days - sensibly so IMHO.
"Martin" wrote
Well if you don't believe *me* -- will you believe the Association of British Insurers (ABI)? :-
URL:
What should I do if I need to make a claim? ... - If you have an indemnity policy then you must deduct an amount to represent wear and tear on the claim form. [Eighth bullet point in that section.]
Looks to me like it says "on the claim form" there, doesn't it?
"Martin" wrote
Well, that *is* possible (some insurers will now base the policy on number of bedrooms rather than sum insured).
But I'm not quite sure why you asked the question - I haven't been talking about "number of bedrooms" policies, I've been talking about policies based on "sum insured".
No, there is no payout reduction for wear and tear. Instead, the claim of replacement cost is already made on the basis of the value of the lost item at the time it was lost.
If I buy a new clarinet for £2000, and insure it on an indemnity basis, I would select a sum insured of £2000 in year 1, and perhaps of £1600 in year 2, etc. If in year 5, when the its value and the sum insured are £800 and it gets stolen, I would claim £800 which is what the insurers would pay. I could then either go out and buy an £800 second hand clarinet, possibly from the vary thief who took it off me, or find some spare cash to add to the insurance money and go out and buy a new one.
No, the premium is lower because the sum insured is lower, given that the risk of loss is otherwise the same.
Or are you suggesting the premium *rate* is lower (i.e. premium divided by sum insured)? That might be true, but would perhaps reflect the reduced risk of old gear being less attractive to thieves.
In the context of general household contents insurance, the only reason one would not continuously revise the sum insured downwards at each renewal, is because you'd expect it on average to stay the same (or indeed rise with inflation), as a result of things getting replaced with newer models from time to time.
wrote
Then you risk under-insuring them ...
"Ronald Raygun" wrote
See my other post to Martin just now, quoting a link to ABI's website (Association of British Insurers). [But check for word-wrap!]
"Ronald Raygun" wrote
Yes, exactly - the rate is lower.
"Ronald Raygun" wrote
Exactly...
I'd believe you before I believe them :-)))) When you wrote that I underestimate how clever they are, I couldn't have disagreed more - which is saying something...!
That is at best badly phrased. They have fallen into the same trap as you - talking about a deduction. Read the preceding two paras. They talk (by implication) about the NEW replacement cost, then about "new for old", so in your bullet thingy they remind you that that (NEW) cost wil be lower - i.e. you must reduce it - cos you only have indemnity cover.
Having reduced it, the insurer is not going to reduce it again, is he, unless sum insured is too low compared with total "indemnity basis " value.
If you click on Home Contents - right hand side of page - you'll see....
"With an indemnity policy a deduction will be made from your claim payment to account for wear, tear and depreciation of the damaged items." So they have suddenly caught up with reality - the insurers (in practice) will make the deduction (unless the insured has already allowed for that).
It goes on...
"The sum insured is the total amount of money for which your contents are covered. It is the most your insurers will pay, even if your possessions are totally destroyed ..."
You are claiming (and RR was until today) that you could never receive the sum insured (SI) on an indemnity policy if the SI was less than the full NEW replacment cost at today's prices. That is simply not true.
On an Indemnity policy, the SI is the cost of replacing OLD for OLD. If you can't accept that, then I'm going to have to give up. :-(
Yes - and they're wrong. Because there is no deduction per se. The price entered is the price claimed is the Sum insured [for that item] is its second hand value is the amount paid out.
The new (at today's prices) doesn't come into it anywhere at all at all at all.
Even that isn't quite true. They use a ready reckoner type approach, so might give 40k content SI for a 4 bedroom house. But the big print reminds you that if your figure is higher, they will still only pay out max 40k. So SI is still crucial - and is the single biggest determinant of premiums.
I asked it cos when I said "[insured value] is necessary so the insurer's know their true exposure and can calculate the premium" you said "Nah" which I took to be a disagreement. But "nah" isn't in my dictionary, and thus I clearly misunderstood and you actually meant "yes Martin - you're completely correct and I am converted!"
Anyway, taking this back to where it began - yes, a pay-out will be reduced if the claimant is found to have underinsured. Underinsured is where the SI is less than the full cost at today's prices of replacing everything brand new, in the case of a new-for-old policy. But for indemnity it's where SI is less than the current value of all contents after allowing for depreciation, wear and tear etc. Effectively it's the "second hand value".
Thus you do not get a claim under an indemnity policy reduced on the ground that the SI is less than the full cost at today's prices of replacing everything brand new.
So the supposed double whammy of 50% x 50% = 25% payout of some days ago, which I think you and RR believed in, is a myth. Urban and otherwise.
Converted now? I hope so.
Well that's what Liverpool Victoria do. The quote is based solely on post code. That's up to maximum of £500000 rebuild cost and £125000 contents, the quote is the same regardless of number of bedrooms or whatever (I tried from 1 to 6 bedrooms, same quote).
Fair comment - but this is essentially the same as the "4 bed detached, tiled roof" deal offered by many today. It happens to have much higher limits, but those limits still exist and are, in effect, still declared at inception. The practical limit (i.e. max payout), of course, would be whatever the house could be shown to contain just before it burned down. Over-insurance doesn't generally pay :-(
Incidentally, on this basis did L+V appear competitive on houses significantly less than 500k and contents significantly less than 125k?
the formula works overall circumstances - whether under-insured or not, whether whole or partial claim - it's merely that you need no maths if you're claiming 100% - because 100% of 5 is 5 - and that's what the company will payout, whether you insure it for 5 or 5 million
if we weren't talking about house contents (partial claims) there'd be no maths at all - insure a diamond for 1 and it gets stolen, you get a 1 - insurance company is not interest in actual worth - only what you insure it for
dont know what you mean by this without example - but i do know that the formula will apply to your example without even seeing it
They were somewhat above the best quotes I could get for smaller houses than we have but were not as expensive as the most expensive. They were cheapest by quite a long way for our big (6 bedroom) house.
The example has been given before, I think.
What I mean is: Suppose you are 50% underinsured (e.g. sum insured £12k when your stuff is worth £24k) and you lose 75% of your stuff. Because what you lost is worth £18k, then if you wanted to get a payout of 75% of your sum insured (75% of £12k being £9k) you would have to claim £18k, expecting it to get adjusted downwards by 50% for underinsurance to £9k.
The problem is that £18k is more than £12k. Can you claim more than the sum insured?
i can't imagine the company accepting a claim for 18k when you're only insured to 12k - but if you did - chances are they would come out - assess the actual value and assuming they come up with 24 k actual (which may be difficut if 75% is missing) they will use same formula and yes - you may well end up with 9K - but there are a lot of variables in between
One does not claim 18k, one claims for the loss (unvalued).
The absolute maximum that will be paid is 12k; less will be paid if averaging applies.
that's yet another issue i dont get - if an 'item' is destroyed, you shouldn't be forced to replace it (i'm sure that's illegal - it is certainly immoral) - you should get sum insured to do with as you please e.g.
if someone bends your fender - they morally/legally owe you the right to be whole again - financially that is the cost of putting it back exactly as it was - since that can never truly be done - whether you accept 'a repair job' is morally upto you - or whether you decide to flog it and put the money towards a new car (that doesn't have a bent fender) should be up to you - exactly the same choices as it would be if you'd bent it yourself - that the only solution to make you morally 'whole' again, and should be preserved legitimately
as i stated, averaging will certainly apply if your claim exceeds sum insured, whether by item or by value
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.