How is the indemnity sum for the loss or damage to a building calculated?

The indemnity sum for the loss or damage to a building is calculated based on reinstatement at the time of the loss less an allowance for betterment. This approach is in accordance with the principle of indemnity, which aims to restore the insured to their pre-loss financial position without allowing them to profit from the claim.

When a building is reinstated, it means restoring it to its original condition or similar value immediately before the loss occurred. However, if the repair or replacement results in improvements or enhancements beyond the original state—commonly known as betterment—then it would be appropriate to deduct this excess value from the indemnity amount. This ensures that the insured is not compensated for upgrades or improvements they have not paid for.

Using reinstatement as a basis for calculation ensures that the insurer covers the expenses needed to bring the building back to its original state without placing the insured in a better position than they were prior to the damage. This method maintains fairness in the claims settlement process.

In contrast, the other options focus on different calculations that may not align with the principle of indemnity. For instance, the cost of repair or replacement at the time of loss might not account for factors like upgrades needed or improvements made post-loss. The market value