What is betterment and how does it affect me?
It was a hot sunny day, mid July, when Tom came out to his car in the parking lot after shopping. But much to his surprise and disappointment there now was a scratch about 8 inches long on the fender. “I’ll just have the insurance company pay for repainting the whole car” he said. But such may not be the case! Otherwise, the owner would be advantaged by the accident through a new paint job.
In cases where the repairs or replacement as a result of an insurable loss end up giving the insured something better than he or she had before the loss …the difference is known as “betterment”. The concept of insurance does not allow the insured to profit or “better” from the loss. Then an appropriate value must be agreed on as to the owner’s contribution towards the betterment.
This is a difficult concept to explain or understand when someone has suffered a loss. Especially after an accident or loss when the policyholder played no role in the event. They have paid insurance premiums and now have the inconvenience of repairs. On older cars it’s simply not realistic to expect an update on a vehicle without some cost to the owner. Remember also that insurance company rates are usually based on losses. This then would probably result in higher insurance rates for everyone. So, the insurance company would have the 8 inches or so fixed and repainted, but, not the whole car.
Unfortunately, there may exist an attitude or misunderstanding sometimes that the insurance they were purchasing in their policy guaranteed them that their property would be repaired at no personal cost.
What is depreciation and how might it affect me?
Let’s look at the same situation, except that Tom finds his car tires have been slashed by vandals. Does Tom benefit from new tires on his car? You bet he does! So the insurance company would take into consideration the mileage, wear and tear of the tires and Tom would have to pay the difference to get new tires on his car. After all, Tom had tires that had 20,000 miles on them and now he has new tires with zero mileage. In new condition. Tom won’t have to replace or worry about them for awhile.
Betterment and depreciation decisions on claims are made on an individual basis. They are dependent on the specific facts of each case. Always though, the object of the claim is to return the vehicle to its pre-accident/loss condition and shape and includes the body, tires, etc..
Please note: These are difficult concepts and often can be an area of conflict during the claim settlement.