New for old, or indemnity with wear and tear deducted

The points below about new for old cover are ordered by how much difference they make, not by how often they get repeated.

Two settlement bases, one policy

A new-for-old, or replacement-as-new, basis pays what it costs to buy an equivalent new item today. An indemnity basis pays what the item was worth immediately before the loss, which means new cost less depreciation for age and condition.

On a five-year-old sofa those two figures are very far apart, and both are legitimate insurance settlements. The policy states which applies, and it is not always the same for every category of item.

Why indemnity is the default principle

Insurance is traditionally a contract of indemnity, restoring you to your pre-loss financial position and no further. Paying new-for-old technically leaves you better off, which is why it is a purchased enhancement rather than the natural rule.

That enhancement costs premium, and cheaper policies sometimes remove it without making the change obvious. Understanding this explains why an insurer offering less than the shop price is applying the contract rather than being obstructive.

The clothing carve-out

Very many new-for-old contents policies specifically exclude clothing and household linen from new-for-old treatment. Those items are settled on an indemnity basis instead, with deductions that can be steep on anything worn regularly.

For most people, this catches people after burglaries and after water damage to wardrobes, where the settlement looks arbitrarily low. The carve-out is normally a single line in the schedule and is worth locating before you need it.

How depreciation is calculated

Insurers apply expected-life tables by category, deducting a proportion of value per year of age. Condition, usage and any documented refurbishment can adjust that, but only if you can evidence them.

Proof of purchase date matters as much as proof of purchase price, because both feed the calculation. A photograph showing an item in good condition shortly before the loss is genuinely useful here.

Where it appears outside home cover

Travel baggage claims are almost always settled on an indemnity basis, which is why baggage settlements disappoint so consistently. Motor total losses are settled at market value, which is an indemnity concept applied to vehicles.

Put simply, building repairs are usually reinstated as new because a partial repair cannot practically be depreciated. Recognising the same principle across classes makes most settlement offers predictable rather than surprising.

Adjust the size of it until it is something you would actually do tired.

What to check on your own schedule

Find the basis of settlement for contents, then look for exclusions from it by category. Check whether the insurer settles by supplying a replacement through its own suppliers or by paying cash. Supplier settlements are often worth more in goods than the cash alternative, because insurers buy at trade rates.

Accepting cash where a replacement was offered can therefore reduce what you receive.

Everything above, in order of what to do first

1. Two settlement bases, one policy. A new-for-old, or replacement-as-new, basis pays what it costs to buy an equivalent new item today.
2. Why indemnity is the default principle. Insurance is traditionally a contract of indemnity, restoring you to your pre-loss financial position and no further.
3. The clothing carve-out. Very many new-for-old contents policies specifically exclude clothing and household linen from new-for-old treatment.
4. How depreciation is calculated. Insurers apply expected-life tables by category, deducting a proportion of value per year of age.
5. Where it appears outside home cover. Travel baggage claims are almost always settled on an indemnity basis, which is why baggage settlements disappoint so consistently.
6. What to check on your own schedule. Find the basis of settlement for contents, then look for exclusions from it by category.

The takeaway

Find the basis of settlement in your schedule, then find the categories excluded from it.

Pick the one that costs you least, and let the rest wait.