NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance
Mr. Raghav Iyer's house, valued at Rs 80 lakh, is insured under a fire policy for Rs 60 lakh. The policy has an average clause. A fire causes a loss of Rs 20 lakh. Assuming the average clause applies on the value at the time of loss, how much will the insurer pay?
The insurer pays Rs 15 lakh. With an average clause, the claim is reduced in proportion to underinsurance: Rs 20 lakh loss multiplied by Rs 60 lakh sum insured divided by Rs 80 lakh actual value gives Rs 15 lakh, because the property is insured for only 75% of its value.
- ARs 20 lakh
- BRs 15 lakhCorrect
- CRs 12 lakh
- DRs 10 lakh
Explanation
Under the average clause, claim = loss x sum insured / value of property = 20 x 60/80 = Rs 15 lakh. Rs 20 lakh ignores underinsurance. Rs 12 lakh and Rs 10 lakh use wrong ratios. Check: 15/20 = 75% = 60/80.
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