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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance

Mr. Rohan Mehta insures his house, worth Rs 80 lakh, with a fire policy for Rs 60 lakh. The policy has an average clause. A fire causes a partial loss of Rs 20 lakh. What is the likely claim payable?

The claim payable is Rs 15 lakh. Because the house is underinsured, the average clause reduces the payment in proportion: sum insured of Rs 60 lakh divided by value of Rs 80 lakh is 75 percent, and 75 percent of the Rs 20 lakh loss is Rs 15 lakh.

  1. ARs 20 lakh
  2. BRs 15 lakhCorrect
  3. CRs 12 lakh
  4. DRs 10 lakh

Explanation

Under the average clause, claim = (sum insured / value of property) x loss = (60/80) x 20 lakh = Rs 15 lakh. Rs 20 lakh ignores underinsurance. Rs 12 lakh wrongly uses 60% of the loss, and Rs 10 lakh wrongly uses 50%.

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