Discounts on cash settlement claims

One of the most common grumbles heard about contents insurance is when claims are discounted for cash settlement. You buy a policy with a replacement clause only to find that when a claim arises you only get paid market (depreciated) value for the lost or damaged item. This will normally happen for the following reasons; 1.    The item is not on the list of contents covered for replacement . Every policy has a list of items covered for replacement. Mostly furniture furnishings, appliances are covered for replacement and personal effects are in most cases depreciated. Some companies will limit items like household linen to market value, presumably due to wear and tear expectations. 2.    The second reason for ending up with a depreciated settlement is when you opt for a cash payment rather than replacing (or repairing) an item. It is probably this clause that creates the most confusion. An example of this would be an item of jewellery that was purchased for sentimental reasons and you no longer have any interest having it replaced. Depending on policy conditions you could find that your insurance company has the right to either depreciate the settlement or to reduce the amount paid by the discount they would have received if you had replaced it. This is likely to be a substantial amount. On jewellery and watches it could be up to 30-50%. Of the companies we reviewed all of them had clauses limiting the amount that would be paid when a cash settlements was requested. Tower and Vero had clauses that specifically refer to jewellery cash settlements at 50% of replacement value. On other items (not jewellery or watches) that would normally be covered for replacement, all companies we review (see list here) reverted to market value for cash settlements. Insurance companies we spoke with said that this was to avoid fraudulent claims, suggesting that their experience indicates items are "˜lost' as a means of cashing up where replacement value far exceeds its current worth. Understandable, but generally not well understood.