Average Clause Calculator
Sum insured, value at risk, assessed loss. Three numbers give the claim after average, and what the insured bears.
When property is insured for less than it is worth, the insured bears a share of every loss. The average clause (also called the condition of average) sets that share. This calculator applies it: enter the sum insured, the value of the property on the date of loss, and the assessed loss.
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Average Clause Calculator
Enter the assessed loss after depreciation and salvage. The excess is optional.
After depreciation and salvage.
- Under-insurance
- 25.00%
- Claim after average
- ₹7,50,000
- Claim payable after excess
- ₹7,40,000
- Borne by the insured
- ₹2,60,000
Average first: claim = loss × sum insured ÷ value at risk, only when the sum insured is less than the value at risk. Then the excess comes off. The claim never exceeds the sum insured. Apply it item by item for a policy with separate sums insured.
The Formula
- Claim after average
- Net loss × sum insured ÷ value at risk on the date of loss. Applied only when the sum insured is less than the value at risk.
- Claim payable
- Claim after average, less the policy excess. It can never exceed the sum insured.
- Borne by the insured
- Net loss less the claim payable: the under-insured share plus the excess.
Worked Example: Stock in a Godown
Illustrative figures.
Sum insured
Working
As in the policy
Result
₹24,00,000
Value at risk on the date of loss
Working
Stock in the godown that day
Result
₹32,00,000
Net loss
Working
After depreciation and salvage
Result
₹8,00,000
Proportion insured
Working
₹24,00,000 ÷ ₹32,00,000
Result
75%
Claim after average
Working
₹8,00,000 × 75%
Result
₹6,00,000
Claim payable
Working
₹6,00,000 less ₹10,000 excess
Result
₹5,90,000
Borne by the insured
Working
₹8,00,000 less ₹5,90,000
Result
₹2,10,000
| Step | Working | Result |
|---|---|---|
| Sum insured | As in the policy | ₹24,00,000 |
| Value at risk on the date of loss | Stock in the godown that day | ₹32,00,000 |
| Net loss | After depreciation and salvage | ₹8,00,000 |
| Proportion insured | ₹24,00,000 ÷ ₹32,00,000 | 75% |
| Claim after average | ₹8,00,000 × 75% | ₹6,00,000 |
| Claim payable | ₹6,00,000 less ₹10,000 excess | ₹5,90,000 |
| Borne by the insured | ₹8,00,000 less ₹5,90,000 | ₹2,10,000 |
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Two Quick Checks
Total loss: if the whole ₹32,00,000 of stock burns, average gives ₹32,00,000 × 75% = ₹24,00,000, exactly the sum insured. Average and the sum insured limit agree at a total loss.
Over-insurance: if the same stock were insured for ₹40,00,000, the sum insured is above the value at risk and average does not apply. The ₹8,00,000 loss is paid in full, less excess. Insuring for more than the value does not raise the claim, because indemnity pays only the loss.
Order of Working on a Real Claim
The calculator starts at step 4. The full worked fire claim is on the loss assessment page.
- 1
Measure the gross loss
Repair cost or value destroyed, at the time and place of loss.
- 2
Deduct depreciation
Where the policy is on a market value basis.
- 3
Deduct salvage
If the insured keeps the damaged goods.
- 4
Apply average
Compare sum insured with value at risk on the date of loss, item by item.
- 5
Deduct the excess
Once per claim, as the policy states.
When Average Does Not Apply
| Situation | Why |
|---|---|
| Sum insured equal to or more than the value at risk | There is no under-insurance to share |
| Bharat Griha Raksha (home) policy | Underinsurance does not apply at all |
| Bharat Sookshma and Laghu Udyam Suraksha | Underinsurance waived up to 15%: no average if the sum insured is at least 85% of value |
| Agreed value covers | The agreed amount is paid without average |
| Separately insured items | Each item is tested on its own, so a fully insured item is not cut because another is under-insured |
Read the Policy's Own Wording
IRDAI's 2024 master circular requires every retail policy to state whether average applies and how much underinsurance is waived. The exceptions above are the ones covered in the IC-11 condition of average page; any other policy's wording decides for that policy.
FAQs
What is the formula for the average clause?expand_more
Claim = net loss × sum insured ÷ value of the property at the time of loss. It applies only when the sum insured is less than that value.
Is salvage deducted before or after average?expand_more
Before. Salvage reduces the actual loss, and average is applied to that net loss. Applying average first and deducting salvage after under-pays the claim.
Is the excess deducted before or after average?expand_more
After. Average is applied to the net loss, and the excess comes off the result.
Which value is compared with the sum insured?expand_more
The value of the property on the date of the loss, not at the start of the policy. Stock that grew during the year can leave a policy under-insured even if it was right at inception.
Does the average clause apply to a total loss?expand_more
It can, but at a total loss the result equals the sum insured, which is the most the policy pays anyway. Its bite is on partial losses.
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