NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Non-Life Insurance Products
Rohit's warehouse stock worth Rs 10,00,000 is insured for Rs 6,00,000 under a fire policy with an average clause. A fire causes a loss of Rs 5,00,000. What is the amount payable, ignoring deductibles?
The payable amount is Rs 3,00,000. Because the stock is underinsured (Rs 6 lakh cover on Rs 10 lakh value), the average clause scales the Rs 5 lakh loss by 6/10, so Rohit bears the proportionate shortfall himself.
- ARs 3,00,000Correct
- BRs 5,00,000
- CRs 6,00,000
- DRs 2,00,000
Explanation
Under the average clause, claim = loss x sum insured / value at risk = 5,00,000 x 6,00,000 / 10,00,000 = Rs 3,00,000. Rs 5,00,000 ignores underinsurance. Rs 6,00,000 is the sum insured and exceeds the loss-based claim. Rs 2,00,000 is the shortfall, which is a wrong base.
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