Sum Insured is the maximum amount the insurer will pay for loss or damage to specified property or insured interests, as stated in the policy schedule. The sum insured may be determined by the insured's declaration, the insurer's valuation, mutual agreement between parties (agreed value), or replacement cost calculations, depending on the policy type and valuation basis selected. If the sum insured is less than the actual value of the property at the time of loss, underinsurance provisions (such as average or coinsurance clauses) may reduce the claim payment proportionately, making accurate determination of the sum insured critical to avoid unexpected gaps in coverage.
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