NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Non-Life Insurance Products
Under a standard fire and special perils policy in India, the sum insured on a factory building is Rs 80 lakh but its actual market value at the time of loss is Rs 100 lakh. The policy contains an average clause. A partial loss of Rs 10 lakh occurs. What is the claim payable, ignoring any deductible?
The claim payable is Rs 8 lakh. Because the building is underinsured (Rs 80 lakh cover against Rs 100 lakh value), the average clause reduces the loss proportionately: 80/100 multiplied by the Rs 10 lakh loss gives Rs 8 lakh.
- ARs 10 lakh
- BRs 8 lakhCorrect
- CRs 12.5 lakh
- DRs 6.4 lakh
Explanation
Under the average clause, the claim is (Sum insured / Value at risk) x Loss = 80/100 x 10 = Rs 8 lakh. Paying the full Rs 10 lakh ignores underinsurance. Rs 12.5 lakh inverts the ratio. Rs 6.4 lakh applies the ratio twice.
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