Mr. Smith's carpet, which cost £1,000 when new, has depreciated to half its value. How much will his insurer pay for a claim?

The insurer will pay £500 for Mr. Smith's claim because the principle of indemnity governs insurance claims. This principle is designed to restore the policyholder to their financial position before the loss, without allowing them to profit from the claim. Since Mr. Smith's carpet has depreciated to half its original value, the amount payable will align with the current market value of the carpet at the time of the claim. As the carpet originally cost £1,000 and has depreciated to £500, that is the maximum the insurer is liable to pay for this claim. This process ensures that Mr. Smith is compensated for the actual loss he has experienced while preventing any overcompensation based on the original purchase price.