Insurance Under Insured?

Having read previous posts, none that I can find by googling, probably as I am using incorrect terminology, I am sure I read that if you insure say your home contents for less than the actual value, the insurance company can make some sort of deduction on any claim. Can someone explain what I am trying to ask?
Suppose I have purchased goods for 30k and I consider them only to be worth today 20k. Can I insure my contents for only 20k or do I have to insure it for 30k? Is this deduction made only if I claim on the 20k or can a deduction be made on any claim?
Am I making any sense?

On Wed, 2 Feb 2005 21:54:01 -0000, "Jane Tweedynn"
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From my observation these days, most home contents insurance is on a 'new for old basis'. i.e it means that you value your contents, £20k in your example, and in the event of a claim they replace them whatever the new price might be.
There may still be some of the other contents insurance around, where you take a premium out sufficient to cover the replacement cost - £30k in your example.
In this latter case, if you'd only insured them for £20k, then the insurance company would only pay out 2/3 of the cost of replacement, up to a maximum of £K30.
However you never get owt for nowt in this world, so in truth the premiums are probably similar
Rgds
__ Richard Buttrey Grappenhall, Cheshire, UK __________________________

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"Richard Buttrey" wrote
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No - under 'new for old' she should insure for 30K (in her example).
Only under an 'indemnity' policy would she insure for 20K.
"Richard Buttrey" wrote
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Yes, for a 'new for old' policy insured for the full 30K. But not if only insured for 20K.
"Richard Buttrey" wrote
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Erm - that'll be the 'new for old' policy again, discussed above.

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Yes, it's called average clause.
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If you have 'new-for-old' policy (most are), you have to insure items for their 'replacement' cost.
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Is this deduction made only if I claim on the 20k or can a
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Yes, any claim when replacing a damaged or lost item, though insurers will only investigate underinsurance if you are making a largish claim.
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Yes. Though if you have an 'indemnity' policy, you only need to, and only get back, value of an item after taking away wear and tear. The idea is you should be able to replace it with an equivalent, secondhand good.
Alec

Alec wrote:
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There must be a lot of scope with new-for-old cover for defrauding insurance companies. You simply buy cheap second-hand gear, insure it for replacement value, and after a decent interval somehow arrange for them to be "accidentally" damaged or stolen, and bingo, you have a brand new thingy for half the price plus a bit of insurance premium.

"Ronald Raygun" wrote
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... and the risk of being investigated for fraud. Is it worth it?

Tim wrote:
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It may well be. You just need to be careful enough to make the accident look genuine. I'm sorry, but I don't see how new-for-old can ever make sense other than for values of "old" which are more like "nearly new", and where the items were in fact purchased new to begin with.
Irrespective of whether people would actually stoop to being fraudulent, it's not a good idea to give them the incentive at least to be ridiculously careless about making sure their insured items don't get damaged or stolen even if said damage or theft is genuine rather than staged.

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"Ronald Raygun" wrote
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Ah, but - it's all in the premium ...

Tim wrote:
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Not when premiums are so cheap that doubling them makes no significant difference to you.

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It makes lots of sense for the insurance company as they will obtain the maximum premium for all the stuff that no thief would want. But as it is you have to insure the old rusty contents of the shed and the rood in the deep freezer!
There's probably a nice arrangement deal for them too in that they might give your vouchers to buy the replacement items at their 'selected' stores.
Insurance is very sharp practice in my opinion these days. I really wonder if it might be much more cost effective to self-insure.

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I had a 21" CRT monitor which I was trading in for 90 which got damaged en route to the shop. I received ~ 450 from the insurance claim. Seemed a reasonable deal to me. :)

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In general terms, not house contents necessarily, the principle is that if you have stuff worth say £20k then the insurance company is exposed to a risk commensurate with stuff worth £20k.
For example property worth £20k is more likely to get nicked than property worth £10k.
So if you insure the said £20k-value stuff for only £10k, you are paying them half the premium but they still carry the same statistical chance of it getting nicked as if you insured it for the full value.
So if it does get nicked, they won't pay £20k, not even £10k. They will pay just £5k! On the basis that you paid for £10k of cover but the risk to which they were exposed to was double of what it would have been if it was really worth £10k.
That's why underinsuring isn't a good idea. Overinsuring isn't either because the extra money is wasted, but the insurers really like people doing that.

wrote:
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Thanks everyone.
Ok, so I have a computer that I purchased for 1k. Today it can only be worth 100. If I was calculating the cost of replacement would this be 1k or 100, bearing in mind that I am unlikely to be able to purchase the same spec computer today for 100 as the parts are either not made will cost more than 100.
In a second situation I have purchased a coat for 250 back in 2000. Its been used often and although I like it I wouldn't be too bothered if it got stolen or damaged, I wouldn't bother making a claim. What value should I use to insure this item?
Now if my computer or my coat were stolen I would not claim on my insurance, however if a fire burnt the house down I could add these to the claim depending on whether i went over my limit.
Now suppose I can get my insurance down by only insuring for 20k, not 30k on the basis of I don't care about the coat or the computer and would not put it as part of a claim, even if the house burnt down because it would take me over the 20k insured limit, would the insurance company probably through some sort of loss adjuster tell me that I have to claim for them and my claim is greater than 20k therefore I have under insured myself?
How on earth are you supposed to value your insurance. I have loads of crap I wouldn't consider insuring.

wrote:
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Whether you want to claim certain items is up to you, but what insurers are interested in is the total value of the house contents - value in terms of 'new-for-old' or secondhand replacement. Even if you choose not to claim, provided the sum insured realistically reflects the true value, they are contractually obliged to meet all claims. For computers, the cover is for an equivalent model available today. If yours is an entry-level PC in 2002, what you'll get is an entry-level machine today, even though it's better specified. For clothing and linens, 'new-for-old' doesn't normally apply and claim will be met on an indemnity basis, so purchase price less wear and tear, calculated over expected lifespan of 3-5 years. To avoid having to work out total value of your contents, you can opt for bedroom-based policy which has a fixed price according to the number of bedrooms, with an overall maximum value (often around 40k).
Alec

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On that basis 99% of our bed-line and clothes are worth nothing! :-)

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The short answer to all insurance questions is to insure only those items which you cannot afford to replace.
To argue with the above is equivalent to saying insurance companies don't make money overall, which is nonsense.
In the long run, you will ALWAYS lose out on insurance.
Extended warranties on appliances are the really obvious example - who cannot afford to just buy another £300 washing machine but can afford the £70 extended warranty premium??
I don't insure my house contents anymore. It is mostly old junk and a burglar would need a removal van and plenty of time to nick it ALL. The most they might nick is a big TV (£300 at Sainsburys nowadays); my extra premium for contents used to be about £500/year!!!
I don't insure my car fully comp anymore. The MV is about £5000 so I told them "£4500" and that stops them forcing me to buy fully comp. The premium has gone down by £300. Motor claims are almost never worth doing because they shaft you so badly and so cleverly over the following years; maybe if one is going to write off a £30k car it's worth having fully comp and claiming.
The real risk to Mr Average is a fire but buildings insurance is relatively cheap. No doubt because few buildings burn down completely and even if they did the foundations will be fine.
A flood may be a problem in some locations, etc.

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I agree absolutely.
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What about fire though, it would cost a fair amount to replace all our house equipment, even if it is all 'old junk' in insurance terms.
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The difference between Comprehensive and TPF&T is not all that much nowadays. My Comprehesive insurance costs less than the amount you saved! I doubt if I'd reduce it much by going TPF&T (I did try a couple of years ago, trivial difference) and you lose a lot of the 'extras' if you do.
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But as I said above what about the cost of replacing all the belongings you lose in the fire?

snipped-for-privacy@isbd.co.uk wrote:
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30k maybe, buying all nice brand new stuff. And that's if the entire house burns down to the ground. I can afford 30k. I will spend more on other hassle e.g. finding somewhere else to live while they rebuild it. The building itself is insured. I wonder if one can get just fire insurance on the contents?
You are right about FC cover not costing much extra. The real problem with FC is that if you do claim, they screw you well and proper for years afterwards. I have made two claims in the last 15 years and got shafted on both of them; the insurer probably recovered their payout within 4 years. I never made money out of it.
If I was driving a new 50k Merc that would be a different matter but the FC cover on that would be how much? Probably £3000 with 7 years' NCD. So, let's say you write it off completely (and not kill yourself). The next year the premium will be something like £10000. £9000 the year after. I can't be bothered to work it out exactly but I will pay out 7+6+5+4+3+2+1 k extra over the following years, a total of 28k in insurance. But they will pay out only the MV of the car, which won't be 50k by the time I wreck it :) Obviously one can work these figures in different ways but it is apparent that it would be worth claiming only if I had made just the one claim and had a protected NCD, or if I was changing down to a cheap little car.

"John-Smith" wrote
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Then you should have paid the little extra for protected NCD!
"John-Smith" wrote
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Try 400-500 -- don't forget, someone buying a 50K Merc should be well over 30 years old.
"John-Smith" wrote
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Are you mad? We're not talking about a boy-racer here are we?
"John-Smith" wrote
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Again, pay the small extra amount to get protected NCD.
"John-Smith" wrote
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Yes, but still not bad from a premium below 500, eh!

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over
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That's possible a little optimistic - in my late 30's I'm paying 700 for a 20K (market value) BMW 325 in a medium risk area. I think you'll find the premium has less to do with the value of the car than the performance of the car. Most insurance websites I have looked at group cars into two price bands for insurance purposes < 7 and 7K- 50K. I assume over 50K you may need to speak to someone - If I ever earn enough to find out I'll let you know!
Shim