The property can be insured on a depreciated value basis or on reinstatement value basis.

On depreciated value basis, the settlement of a claim is the replacement/reinstatement cost of the property at the time of the loss, less depreciation. The sum insured should thus represent the depreciated value of the property insured.

However, to ensure that in the event of a loss the insured is in a position to reinstate the property at today's value, it is common to insure on a current reinstatement cost where the basis of settlement of a claim is new for old without a factor for depreciation. The sum insured would then have to reflect the current reinstatement cost of the property insured.