What is the difference between "new for old" and indemnity cover?
They are two fundamentally different bases for settling a claim, and the difference can be thousands of pounds on the same loss.
Indemnity cover aims to put you back in the financial position you were in immediately before the loss — no better. Settlement therefore deducts for wear, tear and depreciation. A five-year-old sofa is settled at what a five-year-old sofa is worth, not what a new one costs. This is the older and stricter principle, and it is the default in some policies and for some categories.
New for old (also called replacement cost cover) pays what it costs to replace the item with an equivalent new one, with no deduction for age or condition. Your five-year-old sofa is replaced with a new comparable sofa.
Why new for old costs more is obvious from the above — the insurer's exposure per claim is considerably higher, and premiums reflect it.
Where each typically applies:
Most modern home contents policies are new for old with exceptions. The most common exception is clothing and linen, which are frequently settled on an indemnity basis. Check this specifically, as it surprises people after a fire or flood.
Buildings cover is normally on a reinstatement basis, which is the equivalent concept — repairing to the same condition as before.
Motor insurance generally settles on market value, an indemnity concept: what your car was worth the moment before the loss, not what you paid or what a replacement now costs. Some policies offer new-car replacement within the first year or two.
Total loss on a car is the common flashpoint, because market value is often well below what the owner expected. You can challenge a valuation with evidence of comparable advertised vehicles.
Read the settlement basis before the claim, not after.