In the event of a claim, how much will be paid by the insurer for the policy arranged by Paul if the rebuilding cost is £300,000?

In this scenario, the most relevant factor to consider is whether the insurance policy has the appropriate coverage limits related to the rebuilding cost of the property. If Paul’s policy has a limit or condition that significantly restricts the payment amount in the event of a loss and the rebuilding cost is considerably higher than the payout limit, then the insurer would pay only the stipulated amount.

If we are to assume that the policy specifically outlines coverage that limits the amount payable to £5,000, this amount would be the maximum the insurer would pay regardless of the fact that the rebuilding cost is substantially higher at £300,000. This situation highlights the importance of ensuring that insurance policies adequately reflect the true value of the property they are insuring; otherwise, policyholders risk being underinsured.

The other payment amounts given are higher than the stated option, indicating that they likely exceed the conditions of coverage Paul has arranged for his policy. Therefore, the insurer's payout aligns with the predetermined limit set in the policy.