What is wear and tear and why is it important?
How does wear and tear impact insurance?
Most insurance policies make reference to wear and tear, but what does this actually mean?
In short, wear and tear is something which is part and parcel of the normal upkeep of your home, household items, and any other electronic goods.
This affects business insurance claims in two ways.
If the item is at the end of it's natural life
Firstly, if something is no longer working correctly because it’s at the end of its natural life, then this is not something we’re able to help with under your policy.
For example, a recent claim we received related to a broken boiler which in turn meant our Insured had no heating and hot water and so could not open his food-based business for trade whilst it was being repaired. Sadly, on speaking to the engineer, we were advised that the boiler had reached the end of its usefulness and was long overdue replacement. This meant that the claim was as a result of damage due to wear and tear or gradual deterioration and was therefore excluded from cover.
This particular aspect of wear and tear is standard throughout the industry and you will find that this a general exclusion in almost all policies which cover your equipment.
When equipment claims are made on an indemnity basis
The second aspect of wear and tear relates to when payment for equipment claims is made on, what is commonly referred to as, an indemnity basis.
This means that under the terms of your policy, your insurers will reimburse you for the cost of the replacement of, or repair to, your equipment to a condition as good as, but not better than, its condition at the time of your claim.
So, for example, if your 3 year old laptop was stolen, your insurers will value your laptop on the basis that it is 3 years old and make a deduction to any settlement due to you. If we apply this practically to a Macbook Air for example which currently retails for £999 (inclusive of VAT), insurers may look to deduct anywhere from 20% to 30% from this value leaving a settlement figure of between £799.20 to £699.30 before your excess is deducted.
As a rough guide, Insurers will deduct no more than 10% for an item which is under a year old, 20% for anything which is 12-23 months old, and 30% for anything 24-35 months old. Anything over 48 months old may be subject to a deduction of 50% from the value of their settlement.