Home Average Clause

[Sunny]

If you have €50k worth of contents and insure them for €50k, you will be paid €50k if they are all stolen.

If you have €500k worth of contents and insure them for €50k, and they are all stolen, you will get €50k

If you have €500k worth of contents and insure them for €50k, and €100k are all stolen, you will get €10k.

What's the logic for this? I insure 500k of goods for 50k and pay a premium based on a 50k valuation. If 100k are stolen, I don't expect to get 100k but why don't I get the 50k?

Edit: actually thinking about it I see why. So am I correct in saying this doesn't come into play for when there is total loss??

 

[Brendan Burgess]

Consider the following example.

You have a property worth €100k
You insure €50k of it with Insurance Company A.
You insure €50k of it with Insurance Company B.

You suffer fire damage of €20k.

What would you expect the insurance companies to pay you?

Example 2
You have two paintings worth €50k each.
You insure your paintings for €100k.
You lose one and you would expect to be paid €50k

If you insure your paintings for €50k, would you expect to be also paid €50k?

 

[SparkRite]

Consider the following example.

You have a property worth €100k
You insure €50k of it with Insurance Company A.
You insure €50k of it with Insurance Company B.

You suffer fire damage of €20k.

What would you expect the insurance companies to pay you?

Example 2
You have two paintings worth €50k each.
You insure your paintings for €100k.
You lose one and you would expect to be paid €50k

If you insure your paintings for €50k, would you expect to be also paid €50k?

Excellent examples, Brendan.

I really don't see the problem some people seem to be having in grasping this concept.

 

[Joe_90]

I don't think most people have any concept of what they are actually insuring.

They insure their house for what they think its worth which may or may not have anything to do with the cost of reconstructing it.

Take a detached bungalow so 1,600 sq ft worth and insured for €200,000 at a rebuild cost of €130 psqft is about right.

If its only worth 150k and insured at that then it's under insured.

I don't think that the insurance companies make that difference clear.

 

[Claimsman]

The whole concept of insurance is that everybody contributes to the fund and in the event that they suffer a loss,they take from the fund. If you have a property or a risk which is worth say €100k, then you should contribute a percentage of this to the fund and in the event that it is lost, then you get the €100k. However, if you only contribute half of what you should to the fund, then you will only get half in the event of a loss. If you think about it, why should you get the full value of insurance of €100k, when you only pay a premium for cover of €50K.

Average is calculated on the basis of the sum insured( SI)divided by the Value At Risk (what it should be insured for ) multiplied by the loss. Exactly as Brendan outlined..ie

SI 50,000
VAR 100,000 X Loss 10,000 = 5,000.

All commercial policies have a condition of Average. Only a few household policies have Average, most notably FBD. However, this is changing and over the next couple of years, I would think most household policies will have a condition of Average. Be warned against having a low sum insured to save on premium. It really is a false economy. Check out for rebuilding guidelines for house insurance. Also, make sure that the sum insured on contents is realistic.