Average clause

Average clause
See also

Average clause it is a clause in insurance policies, according to which the insured is obliged to cover part of the losses when his assets have been insured for an amount lower than their actual and full value[1].


The average clause's purpose is to protect the insurance company against dishonest declarations of its clients who could underestimate the value of their valuables, and its task is to ensure that the fair premium will always be included in the premium pool from which money is paid to all claimants. To insure against losses, insurers often include an average clause in policies that aim to proportionally reduce the amount insurers are required to pay depending on the level of insurance[2].

It is known that valuations (especially real estate) can vary significantly over the life of the policy. In order to counteract this phenomenon, a special condition of the average can be used, it is that the average will be used only if the proportion of the average falls below the percentage specified earlier[3].

The amount to be paid is limited to the sum insured indicated on the policy - in the case of an insurance claim. The assets will not be insured if the policyholder fails to assess the value of the restoration of assets when concluding the policy. If the value of asset insurance at the time of damage or loss is significantly or slightly less than its actual value, the insurer will reduce the value of the payment according to the difference, this means that the average clause will limit the liability of insurers. This means that the policyholder is considered to be the insurer of the insured amount at the time of any loss, and partial losses can be divided in proportion to the insured amount[4].

Adequacy of Sum Insured

Adequacy of Sum Insured - why it is important[5]:

  • Checking the adequacy of the sum insured is necessary to ensure that the value of the assets is truly reflected. Adequate adequacy of the sum insured will ensure that in the event of damage or loss of assets, the average clause will not be effective, while the insured's claim will be close to his expectations
  • In the event of a liability arising, insurance of assets for a sum that is not in line with reality will not provide full coverage of the sum insured. There is a difference between the sum insured' (applies to protection in the event of a claim) and the actual value (refers to the value of assets).


  1. (Pearson R., (2017), p. 309)
  2. (Talley W., (2013), p. 293)
  3. (Mishra M.N., (2016), p. 411)
  4. (Wallcot L. A., (2019), p.213)
  5. (Hudson G. N., (2013), p. 11)



Author: Monika Sojka