Kinds of insurance policies


Specific Policy 

Under this policy, a specific property is insured for a specific amount. In case of destruction of the specific property estimated at this amount. But when the actual loss is less by fire, the insured is paid this specific amount if the loss is than the specific amount, he is paid only the actual loss suffered by him. Example: Suppose, A insures his house worth Rs. 40,000/- for Rs. 30,000/- against fire and the house is damaged by fire. If the loss is estimated to be Rs. 20,000/ he will get the whole amount of loss ie. Rs. 20,000/- However, if the loss is estimated at Rs. 35,000/- he will, then, get only Rs. 30,000/- ie. the specified amount.

Average Policy 

Average policy is a fire policy under which the "Average Clause" is included. The average clause is included in a fire policy to check under-insurance. (Under-insurance means insuring a property for an amount lower than the actual value of the property. In this policy, if the actual value is greater than the insured amount, then the insurer will indemnify the loss proportionately. The insured is considered to be the insurer for the balance amount of loss.
This can be explained by means of an example:
Value of property : Rs. 20,000/-
Sum insured : : Rs. 15,000/-
Loss by fire  : Rs. 8,000/

In this case the insurance policy covers only 75 percent of the value of the property ie. So when the actual loss is Rs. 8,000/- the insurance company need pay only 75 percent of maximum the loss ie. Rs.6,000/-The remaining loss viz. Rs. 2,000/- is the insured to take out a policy for the full value of his property. to be borne by the owner himself. This type of policy will induce the insured to take out a policy for the full value of his property

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