Reinstatement Basis Settlement

Under the reinstatement basis settlement, the full replacement value is the cost at the time you carry out the reinstatement of damage, and not the replacement cost at the time of the loss.

Insurers calculate under-insurance as the difference between the replacement cost at the time you actually carry out the reinstatement of damage, and the replacement cost at the time of the loss.

The difference can be quite considerable, as there is usually some delay in replacement for the various reasons such as you obtaining approvals for your building plans, building materials shortage, etc.

Consequently, when arriving at sums insured, you should consider losses occurring at or near the end of the insurance period and possibly taking a further 12 months to reinstate.

In fact, sums insured should represent replacement values over a projection of at least 2 years from inception of the insurance.

If you decide not to rebuild or replace damaged plant and machinery, then the reinstatement basis of settlement of the claim changes to Indemnity Basis.

This means that in respect of a building, the settlement will be limited to the cost of reinstatement less depreciation for age and condition at the time of the loss.

Similarly, claim settlement for plant and machinery will be based on the replacement value at the time of the loss, less depreciation for age.

The condition of average is applicable to both above scenarios.

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