If the assessor agrees that the loss was insured for the correct value, the insured person will receive full compensation. However, if the assessor evaluates that the loss has been insured for less than its actual value, they will use the average clause to calculate how much compensation will be paid.
The Average Clause
The average clause is a simple formula for calculating compensation in cases of underinsurance.
Average clause = Amount insured Actual value
Example
The Dennedy family have their house insured for €350,000. The actual value of the house is €400,000 (i.e. it is underinsured). A fire in the kitchen caused €20,000 damage.
350,000 400,000 × 20,000 = €17,500 compensation
× Loss
Calculating compensation using the average clause A
Go to page 79 of your Activities and Accounts Book to practise calculating compensation in cases of underinsurance.
