New for old or contents indemnity cover?

Read our new for old insurance guide to find out more about this type of home contents insurance cover.

If you already have home contents insurance, or you're thinking of a policy, you may think that insurance companies usually pay out enough money when you make a claim for you to replace an old item with a new one.

This is often the case if your home insurance includes a new for old policy. So if you already have cover in place, be sure to check the terms and conditions to make sure you have this. If you don't have new for old cover on your insurance policy then you probably have ‘indemnity cover’.

Indemnity cover is a ‘wear and tear’ policy and doesn’t go anywhere near as far as what new for old insurance covers. For example, if you have a television you bought five years ago that gets destroyed due to a fire, your indemnity cover will pay out the current value of the television.

So if you bought it five years ago and it cost you £500, you will likely receive the amount it's worth today, which could be much lower considering the pace of improvements in modern televisions.

That means if you needed to go out and replace it you might only have enough money to go buy a second-hand television or an older model. When assessing your claim the insurer will take into consideration any wear and tear to the item. How old the product is, and the current market value before paying out. This might be just fine for some people who are happy to pay the difference and get the item completely replaced.

But it may not be good enough if you have a big claim to make on several items. Getting them all replaced could be really expensive, not to mention a lot of hassle.

One of the benefits of indemnity cover is that the premiums are likely to be cheaper than if you had new for old cover on your home contents insurance policy. So if you’re able to save on how much you pay each month or annually for your home insurance cover, then when you do need to make a claim, the relatively small payout can be topped up with what you have saved.

However, there's no telling how much you would need to claim because when the worst happens, be it a fire, theft or flooding. You can’t be entirely prepared for what the damage will be. So it’s important to calculate how much it would cost to replace all of your possessions and determine which items would require a brand-new replacement.

With new for old insurance and indemnity cover you will still need to pay excess each time you make a claim, which is an amount you agree with your insurer. So regardless of the premiums you pay, you will still need to pay a little extra in order to make a claim.

New for old cover can give you peace of mind, knowing that if one of your items you paid a lot of money for years ago is damaged beyond repair, you will be given enough of a payout to replace it with a new one or the modern equivalent.

Sometimes items we bought years ago get taken off the market. In this case, and you need to use the new for old contents insurance, you'll usually be given the industry equivalent or similar. So if that top of the line TV you bought five years ago is damaged, and you need a new one but the manufacturer no longer makes them, you'll get the money to replace it with a newer one currently out there on the market.

This can work out to be more convenient than taking out indemnity cover, which simply compensates you for the loss of your item, rather than replaces it. You pay a little extra for the peace of mind of being able to replace damaged items with new ones, but there are some other drawbacks with new for old insurance you should watch out for.

Before you start comparing home insurance policies to buy, make sure you know all about the differences and advantages of new for old cover and indemnity cover.

There are some exceptions that each insurer is likely to have on a new for old policy, which will prevent you from making a claim against certain items or will prevent you from getting a new replacement.

These exceptions are usually only the items you would expect insurers not to fully cover because their life span is not that long anyway. This includes items like towels, bedding and clothing.

You might still receive compensation on those claims but not necessarily enough to get a brand-new replacement in.

When you start to compare home insurance policies, always check what the new for old policy will cover and what it won’t. If you do have to make a claim one day, it would be difficult to deal with the fact that the item you need replacing isn't covered by your insurance, so always double check this.

If you do decide to take new for old cover, you can try to lower your premiums by including 'voluntary excess'. If you choose to pay a higher excess then the premiums you're required to pay will be lowered because the insurer has less to pay out when you do make a claim.

Remember, when comparing home insurance pick a policy that gives you the right level of cover, which might not necessarily be the cheapest. It’s important to protect your home and possessions to the level most suitable to you first. Then once you have found a benchmark of cover you're happy with try to find the best value on the market.

Also decide if any of the added extras are really useful to you in the long run. You might never make a claim on your insurance or you might make several claims — your policy should still represent good value either way, so weigh this up before buying.

Exceptions for the new to old insurance policy

There are some exceptions to the new for old policy. Items, such as curtains, bedding and clothes, are usually not included as they're considered to be less durable.