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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Non-Life Insurance Products

Mr. Iyer's house is insured under a fire policy for Rs 40 lakh, while its actual value at the time of loss is Rs 80 lakh. The policy contains an average clause. A partial loss of Rs 10 lakh occurs. What is the likely claim payable?

The claim payable is Rs 5 lakh. With the average clause, the insurer pays loss multiplied by sum insured divided by actual value: 10 lakh x 40/80. Because Mr. Iyer insured only half the property's value, he bears half of the partial loss himself.

  1. ARs 10 lakh
  2. BRs 5 lakhCorrect
  3. CRs 20 lakh
  4. DRs 2.5 lakh

Explanation

Under the average clause, claim = loss x (sum insured / value at risk) = 10 x 40/80 = Rs 5 lakh. Rs 10 lakh ignores underinsurance. Rs 20 lakh inverts the ratio. Rs 2.5 lakh applies the ratio twice.

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