InvestorQ : Find out the amount of insurance claim from the data given below: the stock of Goods Rs. 2,00,000 of which destroyed by fire a) Sum insured Rs. 200000 b) Sum Insured Rs. 1,60,000 without average clause
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Find out the amount of insurance claim from the data given below: the stock of Goods Rs. 2,00,000 of which destroyed by fire a) Sum insured Rs. 200000 b) Sum Insured Rs. 1,60,000 without average clause

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Nikita Damle answered.
2 months ago
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Under any fire insurance policy, there is a clause called the average clause where the actual cost of goods/property is higher than the sum insured for such goods/property, then the insured himself shall be liable to bear the difference amount. The insurance company will only pay the insured proportionately for the loss.

Why do we apply the average clause?

It is applied in the interest of insurers, i.e., to save them from paying excess amounts. So that the insurers do not end up paying the entire amount of loss where the premium received was only for some part of the goods/properties.
To mention your example, I’m assuming Rs 2,00,000 is the actual cost of goods, and we have two options:

Option 1: Sum insured is Rs 2,00,000 – In this case, the average clause will not apply as the sum insured is equal to the cost of actual goods. So, the insured is compensated fully for the loss caused.

Option 2: Sum insured in Rs 1,60,000 – In this case, the insurance company will apply an average clause, and you will be compensated proportionately. Ignoring all other factors, let’s assume the loss caused to you is Rs 1,80,000.
Therefore, the proportionate amount that you will be compensated shall be:
1,60,000/2,00,000 * 1,80,000 = Rs 1,44,000. That is the maximum amount you could be compensated for.
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