Many people assume travel insurance policies will pay out the original value of their lost and stolen items overseas. Unfortunately, this is not the case. as insurers factor in something called depreciation on every item covered under the policy.
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Depreciation is the reduction in value of an asset over time due to:
Insurers calculate depreciation on your luggage and personal items using similar international standards. Rates of depreciation typically depend on the following:
Read the depreciation rules for your particular policy carefully before purchasing. While insurers follow accepted universal standards regarding an item’s type, age, condition and usable life, each insurer will weigh each factor slightly differently e.g. some providers will simply deduct 10% off the items value each year whilst others will have a more complicated process.
While you may own an item for a number of years and it may operate without a hitch during that time, insurers are a little more conservative when evaluating an asset’s life. Typical life expectancy terms they apply include the following:
| Items | Years |
|---|---|
| Mobile phones, laptops and tablets | 3yrs |
| Cameras and video cameras | 7yrs |
| Sports equipment | 4yrs |
| Clothing | 3yrs |
| Jewellery | 10yrs |
If an item is older than its usable life, an insurer will pay a flat rate usually around 25% of the purchase price. This is known as the residual value.
Quite often this will differ according to many factors like the condition of your laptop as well as the how the insurer interprets depreciation. The following example details how an insurer might depreciate a laptop that is stolen.
After a week-long business conference in London, Joanne flew down to Ibiza to party for the weekend before coming come to Australia. Unfortunately, her $1,000 laptop was stolen by a local, despite leaving it secure in her hotel. When Joanne made a claim, she received a total of $650.
The benefit received by Joanne reflected a $250 depreciation of her laptop and a $100 excess charge.
A common travel insurance practice is to calculate depreciation by:
This is how travel insurance depreciation can look over time. From three years and onwards, the insurer will only pay out the residual value of the laptop.
One way to avoid this depreciation charge for your laptop would be to list it as a valuable item in your policy.
Some insurers let you avoid depreciation on your personal items by listing them as valuable items and paying an extra premium for them. The cost of this premium varies with each insurer and the maximum amount will vary with each insurer.
Extra cover for a valuable item is not that expensive when you consider the potential cost of depreciation your item receives without the cover.
In this example, the premium for the $1,000 laptop to be listed as a valuable item with a typical insurer is around $50. If the laptop had not been listed as a valuable item, depreciation would have reduced its value to $650 after excess. Paying $50 for an extra $200 worth of extra cover makes financial sense.
Different travel insurance brands have different way of both assessing depreciation as well as premiums for valuable items cover.
You can minimise the amount of depreciation an insurer applies to your claim by keeping good records of documents related to your item, such as proof of purchase and recent photos proving it was in good condition. Proof of ownership can come in the form of:
Each item you list as valuable will require a separate premium. Having less items can be more cost effective, and you don’t want to carry too many valuable items with you on your trip.
The best way to minimise depreciation on your claim is to not have to make a claim in the first place. If you take extra care of your belongings while on holiday, they are less likely to be lost or stolen. Ways to do this include:
Proof of ownership is vital when claiming for loss or theft of personal belongings. If you don’t have proof of ownership, insurers may depreciate your item straight to its residual value. In some cases, your claim may be denied altogether.
Circumstances in which insurers will not pay a claim for lost or stolen items are known as exclusions. Typical exclusions in travel insurance policies include the following:
As well as depreciation, the benefit you receive may also be affected by the excess payable.
An excess is the amount you pay towards a claim on a particular item. Whether an excess applies and how much it costs will depend on your policy.
There are normally two types of excess:
When deciding on a voluntary excess, you should never opt for an amount you won’t be able to afford to pay when you claim, purely to receive a lower premium upfront.
You should also look at the benefit paid after depreciation and the excess cost. If the excess is high and the benefit paid is low, you are not getting good value for money and should either consider paying to have the excess reduced or waived altogether.
*The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing travel insurance policies.
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