Question

A fire insurance policy usually
includes an to discourage the
under insurance of stock or any
asset.
Average clause
O Closing stock
O Opening stock
O Weighted clause​

Answer 1

Answer:

A fire insurance policy has an average clause mentioned in it which takes care of the cases of the under-insurance. In the fire insurance policy, if the assets are insured for less than their full value, the insured is required to bear a proportion of the loss according to the average clause mentioned in the policy document.

Since the fire insurance policy is a contract of indemnity, the insured cannot claim more than the actual amount of loss caused by the fire.

According to the average clause in the fire insurance policy,

If the actual cost of the goods/property is higher than the sum insured for such goods/property, then the insured has to bear the difference.

The insured must bear the cost arising due to the difference between the actual value of goods/property and the amount for which it is insured.

The insurers or the insurance company will only pay for the rateable proportion of the loss.

The average clause applies only when the sum insured is less than the actual value of the goods or the property.

Due to the presence of the average clause in the fire insurance policy, the liability of the insurance company is reduced as per the application of the proportionate approach. The insurers do not pay the full amount of loss incurred to the insured. The insured is then responsible for the payment of the unpaid claim amount.

Explanation:

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