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CS Professional · Banking and Insurance - Laws and Practice · General and Health Insurance

Mehta Traders insures a godown for Rs 8,00,000 under a fire policy with an average clause. The value of the godown at the time of loss is Rs 10,00,000, and a fire causes a loss of Rs 4,00,000. What is the maximum claim payable?

The claim payable is Rs 3,20,000. Because the godown is underinsured, the average clause reduces the claim in the ratio of sum insured to actual value: 4,00,000 x 8,00,000 divided by 10,00,000 equals Rs 3,20,000.

  1. ARs 4,00,000
  2. BRs 3,20,000Correct
  3. CRs 5,00,000
  4. DRs 2,50,000

Explanation

Under the average clause the claim is Loss x Sum insured / Value at risk = 4,00,000 x 8,00,000 / 10,00,000 = Rs 3,20,000. Rs 4,00,000 ignores underinsurance. Rs 2,50,000 wrongly uses a different ratio of 4,00,000 x 10/16.

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