Unless otherwise arranged, the Houseowners policy pays the insured value or the market value of the insured property, whichever is the lower subject to any excess which the Insured is required to bear under the policy. The alternative is to arrange insurance on "reinstatement value" basis. Under this agreement, the Insurer will reinstate or replace the insured property as it was when new, ignoring the elements of wear and tear on the 20 years old house. So when setting the amount for insurance purpose, be guided first by the valuation basis of your choice. If you elect to insure on reinstatement value, base the sum insured on the cost of re-construction today, without the value of land.