Does home contents insurance pay out the replacement value?
If your belongings are damaged, your insurer will pay you for the damage. However, there is a difference between the current market value and the replacement value of your belongings. In most cases, an insurer will pay the replacement value, but there are a few exceptions.
What is the difference between current market value and replacement value?
If your belongings have been damaged by fire or theft, you can file a claim with your insurer. For example, if your television was stolen and it cost 1,200 euros in the store, that is the replacement value of the product. The current market value of the item is the value it had immediately before the damage occurred. So if you’ve had your television for a year, its value may have dropped from 1,200 euros to 600 euros. The current market value is therefore usually significantly lower than the replacement value of the item.
When does the insurer pay out the current market value?
Different insurers have different rules. You can always find the rules regarding replacement cost and current market value in the policy terms and conditions of your household contents insurance. Generally, the current market value is paid out if the current value is less than 40% of the replacement cost. The insurer determines the current value based on depreciation schedules. For example, a bank is depreciated over 10 years, so its value decreases by 10% annually. Once the bank is 6 years old, its value falls below 40%, and the maximum current market value is paid out.
There are other circumstances under which the insurer will pay out the current market value:
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When items are no longer used for their intended purpose
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Damage to Boats and Trailers
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Damage to awnings and antennas
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Items you've borrowed
Insurers base their calculations on the repair costs
If your belongings have been damaged—for example, by a fire or a storm—you won’t immediately receive brand-new replacements for everything. If a fire has left a stain on your couch, the insurer will first determine whether repair is the more cost-effective option. Only if the repair costs exceed the replacement value will the insurer pay out that amount.
If your insurer bases its assessment on the current market value, the repair costs will also be reimbursed, unless they exceed the current market value.
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What about claiming a deduction for your household goods?
Many insurance companies publish the depreciation schedules they use. You can check your insurer’s website to see if they have also published a depreciation schedule. These schedules show you how much your household contents are currently worth. For example, a cabinet is depreciated over ten years. A four-year-old cabinet is therefore still worth 60% of its new value. If the cabinet is destroyed in a fire, you will still be reimbursed for its new value.
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