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How ‘Apply Average’ Clause Helps Under insured Homeowners

At the time consumers choose a homeowners’ insurance, they are required to inform the insurance provider of the value of properties or belongings they need to insure. In the event of an incident when the consumer makes a household insurance claim, the amount of the insurance may come out as incomplete or “sum insured”.

This situation is generally known as under insurance.

Applying Average

If such a circumstance arises, your insurance provider may opt for the ‘apply average’ choice stated under the ‘average clause’.

Essentially, the average clause is an insurance policy condition, which states that the amount payable to an insurance sum should not exceed the value of the property or the belongings insured in case of an incident.

The logic behind the clause is that the initial premium is calculated from the insurance policy value and not the actual value after the incident.

By applying average, the insurance provider can minimize its liability claims of an inadequate insured sum. The resulting sum payout is typically calculated through the following equation:

Insured Sum (true value at risk) x Loss = Sum of The Claim

Check your home insurance policy for special Average Clause provisions. This condition states that you can fully settle your claim,provided your Insured Sum is 85% or more of the true value.

In the event of applying average, you will have completed the premium based on the policy’s insured sum. You do not have to contribute a vast amount to the insurance pool as coverage for the entire property. You are simply entitled to recover the proportion of the loss the insured sum bears relevant to the total value of the property.

In this circumstance, you are your own insurance provider for only a part of the loss that is not covered in under your policy.

Bottom Line

Average clauses are generally common in homeowner’s insurance policies. Check to see if your terms have one; consumers often try to apply average to a claim only to realize that the average clause is not present.

Finally, study your case carefully to understand how your insurance provider or company works. It pays to have the guidance of an insurance expert. Gregg S. Marcus offers comprehensive specialized services in financial consultancy, including insurance guidance. Contact Gregg Marcus for a homeowner’s insurance quote today!