Sum Insured in insurance explained simply. Learn how to calculate the right Sum Insured for buildings, machinery, FFF and stock. Includes free calculator—don’t forget to use it.
What is Sum Insured in Insurance?
The Sum Insured represents the maximum amount an insurance company will pay if a covered loss occurs. In business insurance policies such as Fire, IAR, Property All-Risk and Industrial Insurance, the Sum Insured is normally based on the Reinstatement Value (RIV) basis. This means the Sum Insured should reflect the current cost to rebuild, repair or replace the asset as new — today.
It should not be based on resale value, depreciated book value, or guesswork. Fixing the right Sum Insured is essential, because it determines whether your loss will be fully indemnified at the time of a claim.
How Should Sum Insured Be Fixed?
The correct approach depends on the type of asset insured.
1. Building
The Sum Insured should equal the current reconstruction cost per sq.ft × built-up area + GST (where applicable).
Land value is not included in insurance.
2. Plant & Machinery
The Sum Insured should reflect the new replacement value, including:
- machine cost
- freight and packing
- erection and commissioning
- duties (if applicable)
- installation and alignment costs
GST is normally excluded where input credit is available.
3. Furniture, Fixtures & Fittings
This should be insured at new replacement value, including delivery, fabrication/installation and GST.
4. Stocks
Stocks are typically insured at Cost Price + Duties + GST, not at selling price unless specifically agreed under the policy.
Why Choosing the Right Sum Insured Is Critical
If the Sum Insured is lower than the true value of the property, the Average Clause (Underinsurance Clause) may be applied at claim time. This means the claim amount can be reduced in proportion to the level of underinsurance.
For example, if the actual value is ₹10 crore but the Sum Insured is only ₹5 crore, the claim may be reduced by 50%. Many insureds suffer avoidable financial loss simply because their Sum Insured was not calculated correctly at policy inception.
Make It Easy — Use Our Free Sum Insured Calculator
To help businesses estimate their Sum Insured more confidently, we have created a simple and logical online Sum Insured Calculator where you can input:
- Building details
- Plant and Machinery costs
- Furniture and Fixtures value
- Stock value
The calculator estimates the Sum Insured and also shows a “safe-side” value to help you reduce the risk of underinsurance.
You can access it here:
https://insurancequest.in/blogs/free-sum-insurance-calculator/
Important Note
The calculator gives an indicative estimate based on the information you enter. Actual Sum Insured requirements may vary depending on technical specifications, taxes, installation arrangements, contracts, policy conditions and insurer assessment. It is always advisable to seek professional guidance before finalising the Sum Insured.
Need Accurate Valuation? We Can Help.
If you want accurate, defensible insurance valuation reports for your assets, R B Davar Insurance Surveyors and Loss Assessors LLP provides:
- Insurance asset valuation
- Fire risk inspection
- Risk evaluation and policy review
- Loss assessment and claim support
We help ensure your assets are insured at the correct value, reducing the risk of underinsurance disputes at the time of claim.
Click the link above to access the calculator, and contact R B Davar Insurance Surveyors and Loss Assessors LLP for professional valuation support.
