INSURANCE SIDELIGHTS.

Auckland Star, Volume LV, Issue 151, 27 June 1924, Page 7

INSURANCE SIDELIGHTS.

DON'T OVER-INSURE.

A FALLACIOUS IDEA. THE REPLACEMENT VALUE. There is a growing tendency to overinsure property nowadays, particularly houses and motor cars. It is a common belief that tho amount of an insurance cover is a pood criterion of value, and this is evidenced by the prominence given to insurances in certain classes of sale proposition. Time and time we see that p. property, or a motor par particularly, can be bought lor less than the amount of insurance. It is a bait which plays with a very general fallacy as to the real meaning of an insurance policy. After all, what is an insurance policy. Simply an indemnity against loss. An obligation to pay a certain amount of money at the time of the loss or damage. (We are writing of fire insurance.) But that sum is limited by the replacement value of the insured article at the time of the loss and not by the amount specified ill the policy. It is ignorance of tills fact Unit leads to many disappointments. Fluctuating prices make the fixing of an amount which a company will pay in the event of a fire a difficult matter, and in insuring reputable companies endeavour to keep as near the replacement value as possible. But even though a company or its agent may agree to a certain valuation and insure accordingly, it has been held at law that this is not an admission that this value will hold at the time of loss. The obligation of the company is to reinstate the property in the same condition as it was when destroyed or damaged, or to pay a sum equivalent. Motor car insurance is a ticklish matter. In the last few years pricea have tumbled in all makes and it is found that there are dozens of cars which were insured at the peak prices which can be bought to-daw for less than the amount of insurance. The owner who strikes matches nonchalently about a heavily insured car, or finds considerable satisfaction in the fact that his car has gone over a bank and ho is left safely on top, has an unpleasant awakening when he realises that the insurance company can replace his vehicle in the same condition for about hall the amount of his policy. It is interesting to note that American companies allow fifty per cent depreciation for the first year a car is on thy road. There does not ar>ear to be any hard and fast rule obtaining in Auckland, but the general principle, and the onl) satisfactory one to client and company, is not to renew a policy without revaluation. A substantial reduction each year is considered the only way of giving satisfaction to the client and protection to the company. A point about motor insurance which is worth remembering is that the company does not hold itself liable for minor damages. Its liability commences when the damage reaches £3. As a matter of fact a perusal of a fire policy will show that companies are not liable for a great many of the contingencies which the average person imagines. Often, however, consent is given to claims which could be legitimately dispute. The desire to heavily insure house property is stimulated by the fact that insurance is weighed in assessments for mortgage purposes. A "big insurance helps to obtain a larger mortgage. There is no doubt that some owners are inclined to inflate their values with a view to increasing the insurance. Unfortunately the competition in the insurance world helps to encourage him for in the rivalry of the business some companies will take greater "apparent" risks than others. But the individual who congratulates himself on obtaining a big cover is often the loser thereby directly and indirectly. As he will only be paid the replacement value he is unnecessarily contributing an additional premius. He is the loser all the way. But it is quite possible to legitimately insure a property for more than it cost, and obtain that amount of insurance in the event of loss. Take, for instance, the case of a property which before the war was built for £800 and insured for £500- The days of the housing shortage and high cost of laixmr and materials came along and to-day that same house would cost £1200 to build. Its replacement value has been considerably enhanced and consequently the insurance can be increased proportionately. As a matter of practice, reassessment to meet such conditions is often suggested by the companies.