Many years ago most insurance policies covering Houses and Contents covered them for what was then known as “indemnity value”. These words basically mean that the cover is for depreciated value, and that in turn means you would never get enough to actually buy a new house.
These days almost all House policies provide replacement cover, and more and more Contents are also covered for replacement.
But while insurance companies seem to compete with each other to see which can provide the best cover, it seems that when it comes to claims time some are less eager to honour those promises.
Particularly in the area of Contents insurance, the policies often offer replacement terms on more and more items.
In the early days, replacement was only offered on “furniture, furnishings and home appliances under ten years old”. Nowadays, the 10 year limit is often removed and replacement is often offered on many personal effects like jewellery, laptops and other personal effects.
Such offers may sound attractive and make one policy seem better than the next.
But the test comes at claims time.
Some common practises and principles need to be understood:
• Some insurers will try to have their cake and eat it. They will depreciate items like jewellery and then try to make you spend that depreciated amount at a jeweller of their choice. This is because they usually get a hefty discount there and so they double dip on the deal by depreciating your item and getting a discount when you spend the money. They can’t do that. If an insurance company depreciates an item, it cannot also force you to use that money to replace the item. Having depreciated, the insurance company must pay you cash. If it wants to make you replace the item it must pay the full replacement cost;
• Similarly, an insurance company cannot force you to spend your claim allowance at a shop of its choice if a similar item is not available there. For example, if you’ve lost an expensive designer ring, the insurance company cannot simply give you a voucher to spend at a lower market jeweller that does not stock jewellery of the same type or quality. Again, the insurance company must either replace or pay cash.
Under House policies insurers often offer very generous replacement terms, sometimes without a sum insured limit. They might promise to rebuild or repair your house to an “as new” condition or to pay the cost of rebuilding your house as new in the same or similar construction and style.
But when it comes to claim time some companies attempt to convince or "encourage" customers to take much less than actual full replacement.
Policies often contain clauses limiting the obligation to replace using "commonly available materials" – a bit of a problem if your kauri villa burns down! And sometimes the policies contain nasty clauses that say that the insurance company does not have to replace “exactly” as it was.
Some important points:
• Once your insurance company agrees to replace your house, it cannot force you take something of a lesser quality. If you had wooden window frames that’s what you’re entitled to. If you had rimu tongue-and-groove flooring that’s what you’re entitled to, even if it costs more. The insurance company can’t force you to take aluminium window frames or particle board floors, just because it is cheaper for the insurance company.
• Beware the insurance company that tries to settle a repair job for cash. It’s probably because they know that the costs of repair will escalate and you’ll be caught short. If you agree to cash settle insist on an escalation clause in case the repair job ends up costing more. Insurance repair work is notoriously difficult to quote on and once the job starts, costs can increase significantly.
Above all remember that replacement means replacement. If the insurance promises to replace then that’s what you’re entitled to.
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Andrew Hooker is a partner in the North Shore law firm Turner Hopkins and a director of Claims Information Specialists Ltd, running an insurance information web site www.claimsinformationspecialists.co.nz
5 Comments
My policy defines 'full replacement value' as the costs actually incurred to replace the house. If the Insurance company offers a value less than the general market replacement cost because they have a prefered supplier isnt that the same as depreciating the house and then insisting that you buy from their choice of supplier. This would not be acceptable for contents so why would it be acceptable for a house.
We are presently going through the "Market Value" nightmare.
House burgled, electronics all replaced by voucher system as “replacement” part of policy but all of my wife's jewellery that was stollen is on the “Market Value” part.
Their valuer has put a price on it, then they have put their calculation/deduction on it “indemnity value” and now they are insisting we have vouchers. I have told them that we will accept this on certain items that were newer but that the other items we will be buying on line, second hand shops etc but they refuse to do it. Also asked how they can put a second hand value on something and then only give you a voucher for a shop selling new items.
I understand all that but when they have decided on a price that is "Market Value" and in their words "the cost you would have to pay to buy the item second hand" how come they can force you to have a voucher for shops that only sell new items.
I find it ridiculous that they can say "that is valued at $900 but because it is 5 years old the indemnity value is $400 and here's a voucher for Michael Hill to replace it with a new one". If they gave us the full value i can understand a voucher but when they give you less than half the value how come they can force you to buy new.
It all comes down to getting what you paid for!
Insurance comes in all sizes...buy what you want.
On the other side of the coin, ask to be allowed to speak with the companies investigative people...to see the shite from their side of the fence. It'll blow your mind.
The other 'lesson', and I am not being a smart arse, don't load up on stuff the thieving gobshites will target. Fit your property out with a CCTV...make it bloody obvious to Gobshite that he is being 'filmed' and the data stream heading to the police as he reads the warning. Fit your house out with the latest anti gobshite sound systems. Google to learn. http://www.police.govt.nz/safety/home.burglar.alarms.html
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