When cover under a caravan policy is arranged on an indemnity basis, the sum insured should be based on what value?

When cover under a caravan policy is arranged on an indemnity basis, the sum insured should be based on the market value of the caravan. The indemnity basis means that, in the event of a claim, the insurance will compensate the insured for the actual loss suffered, rather than providing a fixed sum.

The market value reflects what the caravan could realistically be sold for in its current condition. This approach ensures that the policyholder is compensated fairly based on the current worth of the asset, rather than an inflated price that may not reflect its true value due to depreciation or changes in the market.

Considering the other options, the original purchase price of the caravan does not account for depreciation or changes in the market since the purchase. Similarly, the cost of an equivalent new caravan would not accurately reflect the loss for an older or used caravan. The original purchase price plus inflation might provide a figure that seems inflated and does not correspond with what the caravan is worth today. Hence, the most relevant choice that aligns with the principle of indemnity is based on the market value.