Two words on your insurance policy do most of the heavy lifting on the size of any settlement: reinstatement and indemnity. They sound similar; they pay very differently. Reinstatement pays the cost of putting the property back the way it was. Indemnity pays the depreciated value, what the damaged item was actually worth at the moment of loss. The difference can be tens of thousands of euro on a large claim.
What reinstatement cover means
Reinstatement, sometimes called “new for old”, pays the full cost of repair or replacement to original specification. A 15-year-old kitchen destroyed by fire is replaced with a new equivalent kitchen. A 20-year-old roof is reinstated to current building regulations. The depreciation between original spec and damaged condition is the insurer’s, not yours.
Most modern Irish home insurance policies are written on a reinstatement basis for buildings. Contents reinstatement is usually an option, sometimes called “new for old contents”, and it is increasingly the default on better policies.
What indemnity cover means
Indemnity pays the value of the damaged item at the moment of loss, with depreciation factored in. A 15-year-old kitchen on indemnity cover settles at the depreciated value of a 15-year-old kitchen, often pennies on the original cost. The policyholder is left to fund the gap between the depreciated settlement and the cost of a real replacement.
Indemnity cover is more common than people realise. Older policies, certain commercial policies, and the contents section of cheaper home policies still use it. Read your schedule for both buildings and contents to see which basis applies.
Why insurers sometimes pay indemnity even on reinstatement policies
This is where most disputes arise. A reinstatement policy can settle on indemnity terms in specific scenarios:
- Where the policyholder has no intention of reinstating (selling the damaged property, etc.)
- Where the cost of reinstatement is “unreasonable” relative to the indemnity value
- Where the property condition before the loss was so poor that reinstatement is impractical
Each of these is contested ground. The insurer’s loss adjuster makes the case for indemnity; the policyholder’s case for reinstatement is made through evidence of condition, intention, and cost. We carry that case for our clients on every fire damage claim and large water-damage claim.
The settlement gap
Reinstatement-vs-indemnity disputes are one of the most common reasons for an underpaid settlement. The insurer offers indemnity; the policy entitles reinstatement; the policyholder is asked to choose between accepting the offer and engaging in a protracted dispute.
The math usually justifies the dispute. On a 50,000 euro reinstatement claim, an indemnity offer might be 30,000. A loss assessor’s involvement on a no-win-no-fee basis costs a percentage of the recovered difference, leaving the policyholder substantially better off net of fees.
When to call a loss assessor
If your offer letter mentions indemnity value, market value, or “fair settlement reflecting age and condition,” and your policy is on a reinstatement basis, ring before you sign. The wording is the giveaway; the entitlement is what matters.
The check to do today
Pull your policy schedule and look for the words “reinstatement” or “new for old” against buildings and contents. If you see “indemnity” or no qualifier at all, pick up the phone to your broker before renewal and ask whether reinstatement is an option. The premium difference is usually small; the settlement difference is usually large.
Written by the team at N.J. Carroll & Associates, insurance loss assessors and quantity surveyors, established 1988.
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