When it comes to protecting your assets with insurance, it’s important to not only be covered — but to be adequately covered. One critical condition to understand in your property insurance policy is the Average Clause. This clause can significantly impact how much you receive in a claim if your property is underinsured.
What Is the Average Clause?
The Average Clause is a policy condition that comes into effect when the insured value of your property is less than its actual value at the time of a loss. In such cases, the insurance company may not cover the full amount of your claim. Instead, they’ll pay a rateable proportion based on the ratio of the insured value to the actual value of the property.
Let’s Break It Down With an Example
Imagine Mr. Morris from Table Hill suffered a fire-related loss amounting to $50,000. His property was insured for $150,000, but its actual value at the time of loss was $300,000.
Here’s how the Average Clause would affect his claim:
Insurance Company Liability = (Sum Insured ÷ Actual Value) × Loss
= (150,000 ÷ 300,000) × 50,000
= $25,000
So even though the loss was $50,000, the insurer would only pay $25,000 due to the property being underinsured.
Additional Deductibles: What If the Loss Was Due to a Hurricane?
If the damage was caused by a hurricane, Guardian General Insurance policies apply a 2% deductible on inland properties. That means:
2% of the Sum Insured ($150,000) = $3,000
Final payout = $25,000 – $3,000 = $22,000
However, if the damage was due to fire, no deductible applies under Guardian General Policies.
Key Takeaway: Insure Your Property for Its Full Value
The Average Clause is especially relevant in cases of partial loss. If your property suffers total loss, the maximum payout is capped at your insured amount. In the example above, that would be $150,000 — leaving Mr. Morris responsible for the remaining $150,000 out-of-pocket to rebuild.
Avoid Being Underinsured
To ensure you’re not caught off guard, regularly review your property’s value and update your insurance coverage accordingly. Underinsurance might save on premiums in the short term, but it can be costly in the event of a claim.
Questions? We’re Here to Help.
If you have any concerns or would like to review your current coverage, contact Simpson’s Insurance Agency Ltd. We’re committed to helping you protect what matters most.
📧 [email protected]
📞 822-3585 | 822-3587 (Belmopan)
📞 824-3585 | 615-2505 (San Ignacio)
