If you had a smartphone stolen that’s a few years old, would you want a brand new or second-hand replacement? For most people, there’s only one answer; a brand new one. This illustrates the driving principle behind ‘new for old’ cover relating to home insurance policies.
What does ‘new for old’ mean?
Most home insurance policies offer ‘new for old’ cover as standard for the building you own and its fixtures, fittings and contents. It also applies to most ‘away from home’ cover too. New for old means the insurer will either replace items that are totally destroyed, or cease to function due to damage, with new equivalent versions (or pay for the full repair costs if items can be returned to their original state). In other words, you receive, or are compensated sufficiently so that you can afford to buy, the exact same new version; or, if the item is no longer available, then the latest equivalent.
Is new for old standard in all policies?
You should be aware that not all policies offer new for old as standard. Generally, the cheapest policies might offer what’s known as ‘indemnity’ cover, which only replaces items based on their value at the time of a claim. In other words, their second-hand value (see further on in this guide under ‘What’s the alternative?’). Most insurance experts, including ourselves at Policy Expert, would advise that the few pounds you save on your premiums by opting for indemnity rather than new for old cover isn’t worth it; for example, if your home was burgled and you had to make a large claim, you could be left a great deal worse off. Policies can differ, so if you want new for old cover, as most people do, check with the insurer and read the small print before paying to start the policy.
The benefits of new for old cover
Typically, policies offering new for old cover have the following benefits:
- New item or cash equivalent – Some insurers arrange for the item to be replaced and sent to you, others pay out the cash value. Either way, you’re compensated with the new equivalent item or items.
- Repair or replace – If an item can’t be repaired, then the insurer will replace it with the latest, new equivalent.
- Outdated becomes updated – From cameras and laptops, to sofas and carpets, old, outdated items are replaced with brand spanking new versions under the terms of new for old.
- Peace of mind – New for old means you can be sure you’ll be able to afford new versions of the building (or buildings) and possessions you own, bringing peace of mind.
- Available away from home too – New for old cover usually applies to ‘away from home’ insurance too. If your policy doesn’t offer away from home cover as standard, you can usually upgrade for only a little more.
- Policy Expert guarantee new for old – Here at Policy Expert we check that the home insurance policies we offer provide new for old as standard.
What is covered under new for old?
In home insurance offering new for old cover, the principle nearly always applies it to all aspects of a policy. Be warned, however; as with any insurance policy, there will be some exclusions when it comes to the most easily damaged, lost or stolen items (see the section ‘Exclusions to be aware of’ further on in the guide). In general, the following circumstances and items are covered under the terms of new for old home insurance policies:
- Loss, theft and accidental damage (if accidental damage is already included in the policy that is; not all policies offer this as standard)
- Contents – the majority of your possessions will be covered, including:
- Electronics/gadgets – Televisions, smartphones, iPads, tablets, laptops, computers, games consoles, cameras, watches etc.
- Home appliances – Toasters, fridges, dishwashers, washing machines, cookers and other home appliances.
- Carpets and rugs – Carpets and rugs can be very expensive to replace. New for old ensures you won’t be left out of pocket.
- Furniture – Such as sofas, wardrobes, beds, chairs, dining tables and mirrors.
- Antiques – Such as vases, dressers, clocks, china, collectible sets and jewellery.
- Permanent fixtures and fittings – Such as bathroom ‘furniture’ (including baths, sinks and toilets), fitted kitchens (including units, work surfaces and ceramic tops), built-in wardrobes and fixed glass.
- Jewellery – Jewellery can be among the most valuable items in a home. As with antiques, it’s important the value of your jewellery doesn’t exceed your policy’s claim limits.
- Buildings – This includes the main building and usually outbuildings such as greenhouses, garages, garden offices and sheds as well.
New for old example
To help you fully understand how new for old cover works in practice, here’s a claim example: You have your laptop stolen from your home and make a claim on your insurance but the original model is no longer sold. New for old cover means that your insurer then either provides you with a brand new laptop that has the same spec (e.g. memory and functionality) as your old one, or gives you the cash value of the new version so you can source your own. Whether the cash equivalent or a replacement is provided depends on the insurer and the policy. If you have a strong preference for either compensation method, you should check with the insurer and carefully read the small print.
What’s the alternative?
The alternative to new for old cover is known as ‘indemnity’ insurance. If your home insurance is provided on an indemnity basis it means you won’t receive new replacements for items lost, stolen or damaged beyond repair. Instead, the insurer takes into account wear and tear and depreciation in an item’s value. In other words, they will compensate you based on the value of an item at the time a claim is made (i.e. its second hand value). In insurance terms, they are ‘restoring you to the previous position’. If you damage your ten-year-old sofa beyond repair, you will either get a similar or same ten-year-old replacement, or the cash equivalent, for example. This might be hundreds or even thousands of pounds less than it cost you to buy the sofa originally, or how much the equivalent sofa would cost today.
Why indemnity cover is usually the wrong choice
Nearly all insurance experts would recommend home insurance which offers new for old cover. If you have very few possessions of any value, perhaps just the clothes that you own and little more, it might possibly make sense to opt for policies with indemnity cover. However, there are very few benefits of indemnity cover, apart from the fact that policies offering it will cost a little less. The pros and cons include:
- Cheaper – You might pay a few pounds less a month on your premiums.
- Reduced replacement value – You only get the value of items ‘as is’; in other words, the estimated second hand value of your possessions.
- Could you afford replacements – You have to ask yourself the question would you have enough money to replace everything you own?
How to value your contents?
Estimating the value of everything you own is crucial if you’re not going to under-insure yourself, or exceed individual and total policy claim limits. People commonly overlook more ‘fixed’ items, such as carpets and fridge freezers, when totting up the value of their home’s contents. They also often don’t take into account how much new replacement items might have gone up in cost over a number of years.
Here are a number of key points to take into account when valuing your possessions:
- New cost – You should value items based on how much they would cost to buy new, not what you bought them for. Even if you bought something second hand, to buy it new would no doubt cost more, so note down the ‘bought as new’ cost.
- Value of the item, NOT the purchase price – You might have bought an armchair for £300 fifteen years ago, but a new equivalent might now cost £500, for example.
- Valuations – Get expensive items (over £1k) valued every 3-5 years as some items, such as jewellery and antiques, often increase in value over time. If you’re not sure what the latest value might be, go to a valuer (your insurer can make recommendations if you don’t know how to go about this).
Exclusions to be aware of:
There are some items commonly found in the home which will be excluded from home insurance cover. Some items wear out too quickly and are constantly being replaced, and others might be considered far too easily broken, stolen or lost for the insurer to cover them on a new for old basis, or any basis at all. Policies will vary, but exclusions to new for old cover commonly include:
- Clothing and bedding – Clothing and bedding is damaged too easily or wears out too quickly to be included.
- Bicycles – Some home insurance policies include bicycles (usually up to a relatively low single claim value, often £500), but many don’t as they’re too easily stolen or damaged.
- Repairable items – Most new for old policies will always consider whether the item (or items) being claimed for can be repaired and returned exactly to their original condition before offering a new replacement.
- Wear and tear – If it’s simply a case that the item concerned has worn out over time, you won’t be able to claim for it. It would be like claiming for a new pair of shoes simply because you’ve worn holes in the soles.
- Maintenance issues – If the insurer feels an item has broken because you haven’t looked after it properly, they probably won’t replace it.
- Valuations – For items that are hard to value, such as musical instruments, antiques and jewellery, you may need to approach the insurer with a valuation when you make a claim.