Sum insured

The sum insured is the figure the insurer uses as the upper limit of a payout and as a basis for the premium. On most motor policies it is tied to a value basis — retail, market, trade or agreed — which determines how the figure is set and how it moves over time. Get the basis and the number right and a claim settles cleanly; get them wrong and you either overpay premium or get under-settled.

Two failure modes recur. Over-insurance wastes premium without paying more at claim time, because indemnity caps the payout at the car's actual value regardless of an inflated sum insured. Under-insurance is worse: it can trigger the average clause on partial losses and leaves a total loss settled below replacement cost.

Because a car depreciates, the right sum insured is a moving target. Review it at each renewal against a fair retail or market value so it tracks reality — and on a financed car, watch the gap between the sum insured and the outstanding balance, which is where credit shortfall cover earns its place.