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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Non-Life Insurance Products

In a standard Indian fire and special perils policy, which of the following describes the 'reinstatement value' basis of cover?

Reinstatement value cover pays the cost of rebuilding or replacing damaged property with a new equivalent, without deducting depreciation. It differs from market value or book value bases, which reflect wear, market conditions or accounting figures rather than the actual cost of restoring the asset.

  1. ACover for the market value of the building after deducting depreciation
  2. BCover for the cost of rebuilding or replacing the property with new property of the same kind, without deducting depreciationCorrect
  3. CCover limited to the original purchase price of the property
  4. DCover for the book value of the asset as shown in the balance sheet

Explanation

Reinstatement value basis pays the cost of replacing or rebuilding with new property of like kind and does not deduct depreciation. Market value and book value bases take depreciation or market conditions into account, and the original purchase price ignores current replacement cost.

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