BETTERMENT
DEFINITION OF TERMS
BETTERMENT
Betterment is one of those silent insurance terms which most Insured persons get to know about when they have a claim. Betterment is a way for insurers to ensure that policyholders do not profit from an insurance claim. Betterment is the term used to describe any repair or replacement work carried out after a claim that provides a ‘better’ product or property than the original. For example, if an insured suffers a flood in the home and the carpet needs replacement. A new carpet and underlay choice that is of higher quality and value than the original would be considered as betterment. The key fact is to know that the insurer is only liable to pay for the cost of replacing and repairing your property back to its pre-loss condition. However, any gap between the original item value and the replaced item value has to be covered by the policyholder. This is to discourage the policyholder from profiting as a result of an insurance claim.
However, instances arise where betterment happens because there is no other alternative. This is a common occurrence in technology related products as improvements and upgrades happen quickly. Often, the original item cannot be sourced or replaced like for like. In such circumstances the betterment is involuntary and the insurer has to take this into account when evaluating settlement of the claim.
Where property cannot be replaced with the exact same item; it follows that an item or property that is as similar as possible to perform the same function, should sourced. To be clear, replacing property that is as similar as possible and providing the same function cannot be defined as betterment therefore the insurer is liable to cover the cost. Not only is the insurer contractually obliged to cover the cost of replacing like for like property, they are also required to cover the cost of installing any new equipment that may be necessary for new items to function.
If a replacement item requires upgraded electrical wiring to function, the insurer is contracted to pay for such work; to give the insured the same functionality as before the damage took place. Therefore, it is important to note that any work or replacement that is necessary to reinstate the policyholder back to their pre-loss condition is not defined as betterment.