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

Mr. Mehta's warehouse is worth Rs 80 lakh but insured for Rs 60 lakh under a fire policy with an average clause. A fire causes a covered loss of Rs 20 lakh. What is the amount payable, ignoring deductibles?

The payable amount is Rs 15 lakh. Under the average clause, the loss of Rs 20 lakh is multiplied by the ratio of the sum insured to the actual value, which is 60 over 80, leaving a claim of Rs 15 lakh.

  1. ARs 20 lakh
  2. BRs 15 lakhCorrect
  3. CRs 12 lakh
  4. DRs 26.67 lakh

Explanation

Claim = loss x sum insured / value = 20 x 60/80 = Rs 15 lakh. Rs 20 lakh ignores the average clause. Rs 12 lakh wrongly applies 60% to the loss. Rs 26.67 lakh inverts the ratio.

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