Insurance: Replacement - but not as you know it!

Insurance: Replacement - but not as you know it!
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;
  1. 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.)
  2. 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.
  3. 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.
On top of these writedowns you will have another deduction of about $300  for your policy excess. When your original understanding of your loss was for several thousand dollars, it can only hurt when you get significantly less. It was after all a genuine loss - something 'insurance' was bought to protect you from. But after you re-read the fine print, you can't disagree that the policy has been correctly interpreted. Policy coverage varies significantly from one company to another.  That makes "shopping around" - including comparing coverage details - very valuable. We have summarised the Contents policy cover available in New Zealand and have set out the important points of difference from one company to another. You can see these summaries by clicking here. We want to hear of your experiences if you have recently made a claim under your Contents policy. How well did your policy reimburse you for your loss? We are especially interested in hearing of things you learned during that process that would have helped you get a better outcome - if you had only known beforehand.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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