Insurance companies are increasingly likely to pay claims with high-street vouchers rather than cash. But is this fair?
If your possessions are stolen, or damaged in a fire or flood, for example, your home insurance provider should ensure you aren’t left out of pocket.
But you may be surprised by how they decide to put matters right.
Increasingly, insurers will not give their customers cash to cover lost or damaged items.
Instead, the company may use its own suppliers to get direct replacements, or it may offer vouchers that can be used by the customer at a specific high-street retailer to buy a new laptop or washing machine, say.
Both methods cut costs for the insurer while, in theory, ensuring the claim is settled fairly.
Insurance companies strike bulk deals with suppliers and retailers so they pay less for replacement goods, or obtain substantial discounts on vouchers.
But householders are not always happy with this kind of approach.
Rory Stoves at the Financial Ombudsman Service says that the watchdog frequently receives complaints about home insurance payouts and the use of vouchers.
"Most insurance policies allow insurers to settle a claim by repairing, replacing or paying for the items that are lost or damaged," he says.
"This can sometimes come as a surprise to the person making the claim, who may be expecting a sum of money to replace these items."
When are vouchers reasonable?
The ombudsman says that it generally thinks it is reasonable for insurers to offer vouchers provided the retailer concerned can offer a "like-for-like replacement".
In such a case, any customer who rejected vouchers could legitimately have their payout cut to take account of the discount the insurer would have got from its chosen retailer.
However, Stoves adds, there are cases in which vouchers might not be appropriate.
"We regularly see complaints where an insurer has been unable to offer a like-for-like replacement from a high-street retailer.
"Or, the consumer does not want the insurer to replace an item, because it has sentimental value or is considered irreplaceable as it is antique," he says.
Cash for 'irreplaceable' items
"In these cases we would expect the insurer to agree to settle the claim with a cash payment."
Similarly, if a customer can get an exact replacement through the original supplier — a local jeweller, say — then the insurer would be expected to meet the cost assuming its own supplier can’t match the item exactly.
Stoves says: "Finally, if an item is of special personal value, has been individually designed or is in some way not replaceable, then the insurer should offer the full amount in cash."
If you own any items with high sentimental or financial value, it is worth telling your insurer and keeping copies of receipts or taking pictures as records.
Check your policy’s upper-value limit
Most contents policies have an upper-value limit, and anything worth more than this — typically £1,000 or £1,500 — should be declared and insured specifically, at extra cost.
The Financial Ombudsman offers these tips to people who are not happy with how their claim is being settled:
Check your policy wording. If your policy doesn’t say your insurer can provide vouchers, then you can insist on either a cash payment or replacement items.
Replacements should be like-for-like. If the insurance policy allows your insurer to settle a claim in vouchers then you should be genuinely able to replace the item when using them.
Be upfront. If you don’t think the vouchers will allow you to replace items, then speak up sooner rather than later. It pays to do a bit of research too, particularly when it comes to unusual items. Get quotes or proof and pass it to your insurer.