New Value Insurance (Neuwertversicherung)

Concept

New value insurance indemnifies, in the event of a loss, the cost of reinstating or replacing an insured item in new condition at the place of loss, without any deduction being made for the age or degree of wear of the damaged or destroyed item. It is the standard basis of indemnity commonly used in German homeowners and contents insurance.

Distinction from Actual Cash Value Insurance

Unlike actual cash value insurance, where the indemnity is reduced by a deduction for age and wear, new value insurance is based exclusively on the replacement cost of a similar new item; this basis generally results in a higher indemnity payment but may, depending on the policy wording, be linked to a stricter condition requiring actual reinstatement of the item.

Relevance of the Reinstatement Clause

Many policy wordings tie full payment of the new value to a so-called reinstatement clause, under which the insurer initially pays out only the actual cash value and pays the additional new value portion only once the policyholder actually demonstrates reinstatement or replacement of the insured item within a specified period; this is intended to prevent an excessive indemnity payment without actual use for reconstruction.