Is Insurance Fit For Purpose?

AnnikaJuarez

Often, there's a big difference between what people think their items should be valued at and what they're really worth in the market. This gap can make people unhappy with the money they get from insurance claims.

theoretica

I have 'replacement as new' insurance on a musical instrument - but insuring for anything more than market value might be considered to raise the risk of insurance fraud as an alternative to selling something.

DullGreyGuy

theoretica said:

I have 'replacement as new' insurance on a musical instrument - but insuring for anything more than market value might be considered to raise the risk of insurance fraud as an alternative to selling something.

Replacement as new/ market value then over valuing it isn't really a fraud risk it's just paying excess premiums. If it was a fixed value insurance then over valuing it could be a fraud risk as you could "lose it" and get a payout that covers buying a "replacement" and leaves cash in your pocket so creates a moral risk. 

Under valuing it is also a fraud risk though, if someone has a £10,000 guitar why would they intentionally only insure it for £5,000? Potentially they're in financial distress and so trying to save on premiums which may mean they could be at risk of looking to liquidate the asset in the quickest way possible and £5k is more than what a pawnbroker would pay and quicker than trying to sell it.