NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Non-Life Insurance Products
Client case: Ms. Kavita Rao runs a small garment shop. Her fire policy has a sum insured of ₹30 lakh, while the actual market value of the stock at the time of a fire is ₹40 lakh. A loss of ₹8 lakh occurs, and the policy has an average clause with no other conditions. What is the claim payable?
The claim payable is ₹6,00,000. Because the stock is underinsured (₹30 lakh cover against ₹40 lakh value), the average clause scales the ₹8 lakh loss by 30/40, so the insurer pays three-fourths and Ms. Rao bears the balance.
- A₹6,00,000Correct
- B₹8,00,000
- C₹10,66,667
- D₹2,00,000
Explanation
Under the average clause, payment = loss x (sum insured / value at risk) = 8,00,000 x 30/40 = 6,00,000. Paying the full ₹8 lakh ignores underinsurance. The ₹2 lakh option is the shortfall the insured bears, not the payment.
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