NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Non-Life Insurance Products
Rakesh's shop stock is worth ₹20,00,000, but he insured it under a fire policy with an average clause for a sum insured of ₹15,00,000. A fire causes a loss of ₹8,00,000 to the stock. Ignoring any excess or salvage, how much is the maximum claim payable?
The claim payable is ₹6,00,000. Because the stock was underinsured at ₹15 lakh against a true value of ₹20 lakh, the average clause reduces the loss of ₹8 lakh in the ratio 15/20, giving three-fourths of the loss.
- A₹6,00,000Correct
- B₹8,00,000
- C₹5,00,000
- D₹7,50,000
Explanation
Under the average clause, claim = loss × sum insured ÷ value at risk = 8,00,000 × 15,00,000 ÷ 20,00,000 = ₹6,00,000. Paying the full ₹8,00,000 ignores underinsurance. ₹5,00,000 and ₹7,50,000 do not follow the proportion formula.
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