How is the sum insured determined for buildings insurance?

The sum insured for buildings insurance is determined by estimating the cost to rebuild the property from scratch. This approach focuses on what it would cost to construct a similar building using current materials and labor costs, assuming the property is completely destroyed. This rebuilding cost can differ significantly from the market value or resale price of the property, which may include factors like land value, location, and market demand.

Estimating the cost to rebuild ensures that the insurance coverage will adequately protect the homeowner in the event of a total loss, providing sufficient funds to restore the property to its original condition. It’s essential for homeowners to have a sum insured that reflects actual rebuilding costs to avoid being underinsured.