Wear and Tear in Short Term Insurance

Ask any women over a certain age what the meaning of wear and tear is and she will tell you: “It’s staring back at me every morning when I look in the mirror!)” Wear and tear is indeed a life process that no person or object can ignore – it’s a rule of life.

What is the definition of wear and tear?

Wear and tear is a process that takes place over time, it does not happen overnight. It can be described as the gradual physical deterioration of a valuable object. We are only concerned about the deterioration when the object is an asset, i.e. it has a monetary value attached to it. The monetary value will therefore decrease all the time until it has no value left. Wear and tear takes place as a result of time (age), use and weathering.

Why does insurance not cover wear and tear?

Short-term insurance cover provides protection against damage or loss suffered from insurable risks or an insurable event that took place. Examples of insurable risks are: theft, fire, storms, earthquake, break-in and accidental damage.

Wear and tear is not an insurable risk but a natural process taking place over time and is therefore excluded in all short-term insurance contracts. As with everything there are a few exceptions to this rule.

When do insurance companies include cover for wear and tear?

When items are insured at replacement value and not current market value, the effect of wear and tear is taken out of the equation. This is normally the case in householder’s or content insurance. Items that are insured at replacement value will be replaced with new items in the case of total loss. This principle is also referred to as “old-for-new” and this type of insurance is therefore more expensive.

Insurance values should be reviewed regularly, especially during inflationary times. If your insurance cover is not reviewed and adjusted you may be under-insured and should you claim you will only receive a pro-rata payment.

Maintenance of assets and wear and tear

As an asset owner one has a responsibility to maintain the asset and to replace parts of an asset which are excessively damaged by wear and tear. An example we can all identify with is a leaking roof. After heavy rains and storms insurance companies are usually inundated with claims for roof repair.

Did it happen over time or suddenly?

In the case of leaking roofs the insurance assessors often find that the damage was caused by wear and tear or poor craftsmanship, and is not the result of one incident such an a severe storm. If the waterproofing in the roof needs to be replaced and was never done before in a house twenty years of age there is no chance that the insurance company will pay for the damage.

Another example: you have a leaking water pipe, it’s not leaking much, but over time is causes damp and damage. You cannot claim from insurance as you should have had the pipe repaired before the damage took place.

If the damage resulted from a sudden burst during a storm, the insurance company will carry the loss as storm damage is an insurable risk.

Wear and tear of security systems

Insurance policies will always include a clause stating that you are responsible for keeping security systems in good working over. Failure to do so can result in your claim being repudiated. If your alarm system is damaged from wear and tear, get it fixed. Won’t you rather pay for that than finding out the insurance company is not going to meet your claim?

Wear and tear is inevitable, you can’t do anything about it

Yes, it is inevitable…but there are a number of things you can do to limit the amount of damage caused by wear and tear. How you use the asset, especially a car, can limit the damage.

Let’s take two cars, bought at the same time. The one is well looked after, regularly serviced and kept in a locked up garage. The second car is not serviced and is kept in the driveway at night. The first car is used for picking up kids and going to the shops. The second car is often used on visits to a farm with gravel access roads. The amount of wear and tear will be much heavier on the second car.

Conclusion

The principle of wear and tear applies to all your assets…the secret lies in the care you take. The same principle applies to our lives, so take care!