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

Rohan's house, valued at Rs 80 lakh, is insured under a fire policy for Rs 60 lakh with an average clause applicable. A fire causes a loss of Rs 20 lakh. Ignoring deductibles, what claim will the insurer pay?

The insurer pays Rs 15 lakh. With the average clause, the claim is reduced in proportion to underinsurance: the loss of Rs 20 lakh multiplied by sum insured Rs 60 lakh divided by the property value Rs 80 lakh equals 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 = loss x (sum insured / value of property) = 20 x 60/80 = Rs 15 lakh. Rs 20 lakh ignores underinsurance. Rs 12 lakh results from wrongly computing 20 x 60/100. Rs 10 lakh is not supported by the data.

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