Most people are familiar with the concept of a sum insured under a policy and often people will consider the limit of indemnity under their policy to be the sum insured.
There is a fundamental difference between the two and once explained it is fairly easily understood.
What is a sum insured?
For a sum insured we can look at a simple home insurance policy. When you take out the policy you decide what the replacement value of the contents of your home is and you choose this value as your sum insured. Clearly there is a basis for the sum insured and that will be the most an insurance company will pay in respect of that item or items.
What is a limit of indemnity?
Under other classes of insurance for example , liability insurance professional indemnity insurance, the actual value of any possible claim is not so clear. It is for this reason that you select a limit of indemnity under the policy. The limit should be adequate to cover any claims that you might reasonable face, not always the easiest estimation for anyone, and this limit of indemnity will be the maximum liability of the insurer in respect of a claim or number of claims under the policy.
This is fairly straightforward except that the selection of the limit of indemnity is a significant factor and can be made more difficult depending upon whether the limit is in respect of any one occurrence or in the aggregate.
As with all such issues further advice on this matter can be sought from your insurance broker or you can call us direct to discuss this or any issues arising with your business insurance.