Re: Contents Insurance valuation

"Martin" wrote
But you got the claim size wrong. Claim size is
total replacement cost. So payout is insured limit.

"Tim" wrote
But you can't claim for £25,000, when
you only have a policy for £12,500!!

Hence, claim amount = £12,500.
Also, insured amount = £12,500.
But replacement cost = £25,000.

Hence payout = claim x limit / cost ...
= £12,500 x £12,500 / £25,000 = £6,250.

Geddit?

"Martin" wrote
Nope.

Oh dear!

"Martin" wrote
Your claim is for the replacement of all the stuff lost.

.... at *second-hand* prices (RR is considering
'indemnity' cover, not 'new for old').

"Martin" wrote
That is then valued - at say £25k.

Nope - RR said second-hand value
= £12.5K, so that's the claim amount.

"Martin" wrote
Insurer then says "hey - you're not insured for £25k. You've only
paid enough premium to cover your for £12.5k if you lose everything..."

.... OK ...

"Martin" wrote
"... So that's the maximum we're going to pay".

Rather, "So we'll only pay half of your claim amount."

"Martin" wrote
Like RR, you're imagining - wrongly - that the reduction
of the claim happens twice - once by the insured
cos he finds he's under-insured, and again by inscoy.

Nope, the claim amount (of £12.5K) is only reduced by half *once*.

"Martin" wrote
Thus in your scenario, the max payout for x% underinsured would be
replacement cost times ( 1 - x% )^2, meaning if 50% underinsured,
the max payout would be 25% of total replacement cost.

Only because "25% of total replacement cost", happens
to equal "half of total second-hand value" in this case.

If all the items lost were brand-new, and the "second-hand" value then
essentially equalled the 'replacement cost' of £25K, *then* the payout
would be £12.5K. But second-hand value quoted was only £12.5K...

"Martin" wrote
If you lost everything, and claimed the max covered on your policy
- i..e £12.5k - ins coy are only going to be interested in whether
replacement cost is less than £12.5k, not whether it's more than £12.5k.

No, because the premium is based on the replacement cost
being the insured amount stated. If the insured amount is only
half of what it should be, then any claim payout will be halved.
[Just as the premium paid was half of what was required.]

"Martin" wrote
If you're in any doubt, just read the small print in any insurance policy.

Martin, did you forget that I am an actuary? ;-)



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