There can be two methods to fix the policy sum. The first one is by the market value (MV) method and the second one is the reinstatement value (RIV) method.

Market value (MV) method: In case of the MV method, in case there has been an event of a loss, depreciation on the asset is levied depending on the age of the asset. Under the coverage of this method, the insured is not paid amount sufficient enough to buy the replacement.

Reinstatement value (RIV) method: In case of the RIV method, the Insurance company will pay the cost of the replacement subject to ceiling of sum insured. Under the coverage of this method, depreciation on the asset is not levied subject to condition that the damaged asset should be repaired/ replaced in order to avail the claim. A pertinent point that needs to be noted is that the RIV method is applicable to cover only fixed assets and not for any other assets like stocks and stocks in process.