NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance
Mr. Rohan Mehta's house is worth Rs 80 lakh. He insured it under a fire policy for Rs 60 lakh. A fire causes a partial loss of Rs 20 lakh. The policy has an average clause (no other conditions). What amount will the insurer pay?
The insurer pays Rs 15 lakh. Because the house is underinsured (Rs 60 lakh against a Rs 80 lakh value), the average clause scales the Rs 20 lakh loss by 60/80, giving Rs 15 lakh, so Mr. Mehta bears the remaining Rs 5 lakh.
- ARs 20 lakh
- BRs 15 lakhCorrect
- CRs 12 lakh
- DRs 26.67 lakh
Explanation
Under average (underinsurance), claim = loss x sum insured / value = 20 x 60/80 = Rs 15 lakh. Rs 20 lakh ignores the average clause. Rs 12 lakh wrongly uses 60% of the loss. Rs 26.67 lakh inverts the ratio.
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