The sum insured is the amount of money indemnified or covered under an insurance policy. It represents the limit that an insurance company will be liable for in case of a total loss.

When dealing with the sum insured it is important to consider whether the insurer is using market, retail or replacement values for the insured items. In household content insurance the sum insured should be for the total cost of replacing all the insured items with new items – this is called “new for old.”

In car insurance this option is not available as the depreciation rate on cars are very high. You will either have the choice to insure your car for market or retail value (see market and retail value for further details.) The sum insured will be the current value of your car at the time of taking out the insurance. Here it is important to note that if your car is insured for market value your insurance premium should be adjusted annually to the new market value, which is the sum insured. Make a point of reviewing your insurance annually and confirming with your insurer that they have adjusted your insurance premium. If this is not done you will be over-insured and will gain nothing as you will only be paid the current market value as at the date of suffering a loss. In the meantime you have paid too much on your monthly insurance.