Many people will recognise the expressions “indemnity” and “new for old” as being related to claims on home insurance policies but what is the difference between indemnity and new for old on a home insurance policy?
Both expressions refer to the basis of settlement for claims that occur under a home insurance policy.
What is the basis of settlement under a home insurance policy?
The basis of settlement under a home insurance policy dictates the way in which the amount of the loss is calculated and paid out to the insured following a claim.
What is an indemnity basis of settlement under a home insurance policy?
The indemnity basis provides for a calculation of the claim based on the replacement of any property destroyed by a similar item of the same age and condition; this is achieved by a starting point of the replacement value from which a suitable deduction is made in respect of wear and tear.
Historically this was the standard basis of settlement under home insurance policies and whilst most policies are now issued on a new for old basis, this basis is still in use for such items as household linens and clothing.
What is a new for old basis of settlement under a home insurance policy?
The new for old basis of settlement is now the standard basis for settling home insurance claims. This basis provides for the property that is damaged to be replaced as new with no deduction for wear and tear . This basis is also known more broadly in insurance terms as a reinstatement basis of settlement but new for old is almost universally used as an expression in connection with home insurance policies.
It is worth noting that in recent years insurers have moved using replacement of property through their own network of suppliers as their preferred method for settling home insurance claims. This provides both an improved service for policyholders who no longer have to go shopping around for the replacement items but also helps insurers to control their claims costs be allowing them to agree significant discounts with suppliers.