Savvy Money: Can you vouch for getting the right insurance payout?

If you're one of the unlucky ones whose property has been affected by the recent storms and floods, you may be waiting for a payout from your insurance company. But do you know how your claim will be paid? Are you expecting a replacement item or a cheque in the post? It may not be either.

Vouchers, cash or a replacement?

Some insurance companies will give you the choice of how you'd like the claim settled (especially policies aimed at "high net worth" customers or some sold by brokers), but with most home insurance policies the insurer decides whether to repair an item, replace it or give you cash.Most of the well-known insurers state that it's their choice how your claim is settled. If you're offered a replacement it may not mean an identical TV (or whatever) is delivered to your home, but instead that you get a voucher to spend at one of the insurer's "preferred suppliers".

Why insurers like vouchers

When an insurer issues a voucher, you can generally spend it at a handful of retailers. And the insurer is able to negotiate a healthy discount - up to 35 per cent of the voucher's face value. The number and range of retailers will depend on the individual insurer: some will include independent retailers as well as high street or online chains, others may not.

A good option?

Vouchers aren't necessarily bad news for customers. If you have a voucher rather than a direct replacement, you can use it to buy something completely different to the item you're claiming for. Or you can pay a bit more and upgrade to something better. But vouchers aren't right in all circumstances.

When you can refuse a voucher

If you're claiming for something like an antique ring or a bracelet that was custom-made, it's fairly obvious that a voucher for a chain of budget jewellers is unlikely to put you back in the position you would have been in had you not suffered the loss (which is, after all, the whole point of insurance).

However, I've had emails from people who have been trying to claim for unusual jewellery and who've been given the option of a voucher for a high street chain (which can't replace the jewellery) or around two-thirds of the face value of the voucher in cash. Let's be clear; this isn't what insurers should do. In cases like that you should be offered a replacement or the full cash value.

The Financial Ombudsman Service receives a steady stream of complaints from customers who have been offered vouchers or a much lower cash sum when they've made a claim. So don't be afraid to take your complaint further if you're unhappy with your insurer's approach.

What is 'like-for-like'?

Where it can be a bit of a grey area – and where you may have a battle with your insurer – is if you prefer a particular brand or model of item that you're claiming for, but that the preferred suppliers don't sell.

Talking to insurance companies about this, the consensus seems to be that there are certain items (expensive watches, for example) and brands (Apple is one that's quoted) where the brand matters – a lot. However, for everyday items or other brands, it may be harder to argue that the one you're being offered isn't "like for like".

Check before you buy

If you want to be sure you'll get the replacement you want, find out the insurer's approach to replacing lost/stolen items before you buy a policy. If you buy through a broker they should know how insurers handle claims.

If you're purchasing through a price comparison site or directly from the insurer, check the policy document for information on how they settle claims (a search for the words "supplier" or "cash"' should take you to the right section).

Verdict

Vouchers aren't necessarily a bad option if you're claiming. But you shouldn't be forced to accept them – or a lower cash sum – if you can't replace the item you've lost at one of the insurer's "preferred" retailers. Don't be fobbed off!

savvymoney.co.uk