What is average clause in general insurance?

1: A clause in an insurance policy that restricts the amount payable to a sum not to exceed the value of the property destroyed and that bears the same proportion to the loss as the face of the policy does to the value of the property insured — compare coinsurance

2: A clause in a marine insurance policy that exempts the insurer from particular average and in respect of some things from all average

The average clause in general insurance amount of claim for loss of item is reduced, considerating the ratio of policy amount to the value of item as on date of fire..

Amount of Claim= loss of stock X Sum assured / Insurable amount (Total Cost).

The average clause apply only the insurable value is less than the total cost...

The average clause is condition in an insurance policy stated that when the value of insurance policy (total sum insured) is proved  under insurance  claims paid partially and the insured retain the difference as a  proportionate share.

The logic behind this is that the initial premium paid by the insured is calculated from the policy value and not the actual value as appeared after the incident.

 Thanking You.

Average Clause is a formula used to calculate the amount payable for a claim based on the insurance coverage relative to the replacement cost of the property.  If a property is insured for less than85% of its replacement value, the insurance company will calculate the loss in proportion to the sum insured.  For example, if a property is insured for less than the replacement value and the premises are partially damaged, the insurance company will apply the following formula to determine the amount to be paid to the owner:

Sum Insured x Amount of Loss = Amount Recoverable Value Replacement Value

Once the property is insured for less than its replacement value, the owner is responsible for the remaining portion of the risk.

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