New for Old
New-for-old insurance cover means that an insured item which is lost or destroyed will be replaced by a brand new one. There is therefore no deduction made for depreciation (wear and tear) of the item. It is sometimes also referred to as “replacement as new.”
This basis of insurance is mostly used for Household Content insurance where one needs to insure for the replacement value of items and not the current market value. Insurance is therefore calculated on a higher amount than what your possessions are actually worth at the present moment.
In car insurance most insurers will only insure your car valued at current market value and not for replacement or new-for-old value. The reason for this is that cars devalue very fast, as soon as you drive your brand new car off the dealer’s floor, it has already lost value. Insuring at replacement value when dealing with car insurance will be extremely expensive.
Specialist car insurance such as executive, classic or exotic cars normally pay out at retail rate, which is higher than market rate. The retail value is the value at which a car dealer will sell the car in a show room plus a fair mark up, currently around 15%. This percentage can change depending on supply and demand.