Insurance: Replacement - but not as you know it!
14th Jan 10, 7:30pm
By John Grant Making a claim under your Contents policy can result in some unwelcome and frustrating "education" on how the policy specifics apply. Over the years, policies are updated and cover is being changed all the time. This has mainly been to add new cover but it has also tighted areas where companies have seen high levels of claims. Policies are now quite complex and it's the newer aspects of coverage that appear to be creating the most angst. Here is a summary of the more common complaints we hear;
- Replacement cover - and then finding that an item lost or stolen is devalued in the policy's replacement provisions. An example is for household linen. If it was, say, 6 years old it could be regarded as 75% worn. That means that if the original value was $200 then the maximum payable on a claim might only be $50. For someone who thought they had a replacement cover for lost or stolen linen, they might now find they will get much less than expected - or possibly nothing at all. (A policy excess is also to be deducted, although that will apply to the overall claim, not necessarily to individual items within the overall claim.)
- But you don't want replacement; you would rather have the cash. All contents policies we reviewed have a clause that require goods to be physically replaced rather than cash settled. If you insist on a cash settlement then the value will be based on the item's Market Value - that is, the depreciated value of a [well] used item. In some cases that could mean it is discounted by as much as 50% or more. An example could be a ring that was passed down from your mother's estate. Now lost or gone, you have no wish to replace it. You ask the insurance company for a cash settlement and find the item that you had obtained a replacement valuation of $5,000 is now to be cash settled at $2,500 based on the way your insurance policy provides for such valuations. Ouch! It particularly hurts because of the emotional attachment one has to such items.
- Items you have borrowed. A friend has lent you a new TV set. They didn't have room to store it at their home and it was great to have in the family room. Your TV was left by the burglars but your friend's set has been stolen. Their policy did not cover them for burglary away from their property and you claim for it under your policy. But your insurance company may well decline the claim as you are not the owner of the property.