What is wear and tear and why is it important?
How does wear and tear impact insurance?
Most insurance policies refer to wear and tear — but what does this actually mean?
In short, wear and tear is something which is part and parcel of the normal upkeep of your home, household items, and any other electronic goods.
This affects business insurance claims in two ways.
- If the item is at the end of it's natural life
Firstly, if something is no longer working correctly because it’s at the end of its natural life, then this is not something that’s covered under your policy.
For example, a recent claim we received related to a broken boiler. This meant our customer had no heating or hot water, and so couldnt open their food-based business for trade while it was being repaired.
On speaking to the engineer, we were advised that the boiler had reached the end of its usefulness and was long overdue for replacement. This meant that the claim was invalid, as the damage to the boiler was through wear and tear or gradual deterioration.
This particular aspect of wear and tear is standard throughout the industry. You'll find that this is a general exclusion in almost all policies which cover your equipment.
- When equipment claims are made on an indemnity basis
The second aspect of wear and tear relates to when payment for equipment claims is made on, what is commonly referred to as, an indemnity basis.
An “indemnity basis” means that under the terms of your policy, your insurers will reimburse you for the cost of the replacement of, or repair to, your equipment to a condition as good as, but not better than, its condition at the time of your claim.
So, for example, if your three-year-old laptop was stolen, your insurers will value your laptop on the basis that it is three years old and make a deduction from any settlement due to you.
Let’s apply this to a MacBook Air for example, which currently retails for £999 (inclusive of VAT). Insurers may look to deduct anywhere from 20% to 30% from this value leaving a settlement figure of between £799.20 and £699.30 before your excess is deducted.
Different insurance policies from different insurers will vary, but insurers will always make a deduction for wear and tear.
While business insurance covers a range of eventualities and circumstances, it doesn’t cover everything. Please make sure to read your policy documents carefully to understand the full details around exclusions, terms and limits of your cover.
Discover more about making a claim
Our business insurance claims guides answer the questions you may have about making a claim, so you have all the information should you need to make a claim.