Say your house is totally destroyed in a hurricane and the cost of rebuilding your house today is $200.000. This includes everything that is insured,as per the description in the insurance policy. It follows that the sum insured should be $200.000. However, say you were insured for only $150.000. In other words, only three quarters of the house was insured, and now the house is totally destroyed. The insurers will only pay $150.000. In other words, you will have been your own insurer for a quarter of the replacement cost, namely $50.000. The same rule will apply to every other loss, no matter how small: You will be your own insurer for one quarter of every loss. The formula is: Sum insured divided by the actual replacement cost of the entire insured property, multiplied by actual loss = claim payment..
