NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance
A non-life insurer applies the average (underinsurance) clause. A shop's stock is worth Rs 20,00,000 but insured for Rs 15,00,000. A fire causes a loss of Rs 8,00,000. Assuming no other conditions, the claim payable is:
The claim payable is Rs 6,00,000. Under the average clause, the insurer pays the ratio of sum insured to actual value at risk, 15 lakh over 20 lakh, which is 75 percent, applied to the Rs 8,00,000 loss.
- ARs 8,00,000
- BRs 6,00,000Correct
- CRs 5,33,333
- DRs 7,00,000
Explanation
Claim = (sum insured / value at risk) x loss = 15/20 x 8,00,000 = Rs 6,00,000. Rs 8,00,000 ignores the clause. Rs 5,33,333 wrongly divides the sum insured by the loss-based ratio inverse. Rs 7,00,000 deducts the shortfall of Rs 5,00,000 incorrectly in part.
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