Posts Tagged ‘average clause’
Is Average Clause just for partial loss?
Hello again, its been a while that i haven’t been blogging about insurance. Went busy the past few months. Anyway, i encountered a tricky question about insurance and i consulted with my friends from my Linkedin group IRMP-Asia. The question is ” Is average clause only applicable to partial loss?” To the many who is not aware of average clause, please read it here. I personally believed that average clause should be applicable to both partial and total loss in terms of property insurance like cars and houses or buildings. Because this is the safety net of insurance companies to minimize underinsurance. Many of the insuring public here in the Philippines is not aware of this. They know insurance but they don’t know the real essence of it! Mostly the rich sectors are culprits of this practice. They thought that by insuring a portion of the real properties worth will save them a few thousands from the annual premiums but they forgot that they are buying risk insurance that will save them a million’s worth in times of peril. I believe they got lost their that there main focus is to bargain their insurance premium. Anyways please see the comments from my linkedin account:
Basic Principles of Insurance.
I’ve been telling this always that Insurance is very young in our country and Filipinos needs to know more about insurance. So as part of my advocacy, please read this first or watch the video presentation before buying your fire or car insurance. This will help you in determining what you are trying to buy is the correct one. “Buying correct insurance is an asset, buying wrong insurance is just an expense!”
What i’ll put here are in Lei mans terms and the one in Youtube are in legal terms.
1. Average Clause- the insurance company will assume that the insured is self insuring his or her property when during investigation of the loss, they found out that the loss is of greater value than the actual loss value. In this case, the insured shall be considered as being his own insurer for the difference and shall bear a ratable proportion of the loss accordingly. Example: Insured amount 5M, Actual investigated loss 10M, the insurance will pay the insured 2.5M which is 50% of the your sum insured. Remember that the insured is paying annual premiums and most of the time, the reason why they lower down the property’s value because they wanted to have a lower annual premium.
2. Principle of utmost good faith. The insurance requires full disclosure from the customer. Insurance will accept any value that you will declare with your property, they should not and would not debate on how much it should be because as the owner of the property, you know better. For your information, this can also be a ground for denial of claims.
3. Principle of Insurable Interest. A customer may only insure properties that is his or hers via legal documentation. There is no reason for someone to pay annual premium that is not his or hers unless they plan to do something fraudulent. For instances that you buy a second hand vehicle and prefers not to change ownership on your name, make sure to let your insurance agent know that so he can put a “paid by: your name” in the policy and give him or her copy of your deed of sale. This will save up lots of time in future claims processing.
4. Principle of Indemnity. The assured should always act and protect its property as if it is not insured. For example, you got hit by a bus and you had the chance to go after it, you should. Even just to get the plate number and bus company’s name so that your insurance company can go after them which is explained in number 5.
5. Principle of Subrogation. Insurance’s right to recover from the losses it paid to its assured from the liable third party.
6. Principle of contribution. Any individual has the right to assign multiple insurances to his single property but during a claim, insurances will share a rational proportion from the losses. Example: Your building is worth 10M and you purchased 4 insurances on different occasions at 10M each. At the time of loss, the 4 insurance will for sure talk to each other pay the ratable proportion. This prevents frauders to earn from insurances.
7. Principle of proximate cause. Insurers will only pay you for the perils you paid for. Even if you have a “comprehensive” insurance it doesn’t really mean that you are covered for everything. So you really have to be careful and detailed with your insurance agent to get the correct insurance for your property.
If you are interested to have your properties covered with the correct insurance, please feel free to give us a call. Contact us at 02-7245140. Well be glad to explain further.
Disclaimer: The clauses and principles are derived from the insurance code of the Philippines. The meaning and description provided in this blog is the personal explanation of the author. Insurance decision will still prevail and the author should not be liable for any decisions or outcome your current claim should arise from. This blog is purely for the purpose of expressing the authors passion with non-life insurance and its business.
Fire Insurance: Principle of Average Clause
Many of you might be asking how much should you insure your property. Some of you may want to increase the value of your property not minding the annual premium, thinking you might get more if the loss arises. Some of you may want to decrease the value of your property thinking of saving a few bucks for the annual premium and getting the whole insured amount because you know that it is under insured.
We will now answer the unanswered! We will now explain why most Pinoy hated their insurance companies and agents before!
After 3 full years in the non-life insurance business, i ve seen all sorts of personalities. Some are honest and prudent and most are not. This goes to both the insurance companies and the people. The correct answer to this question is… If your property including your furnitures is below 3M, you should declare a value that will suffice to replace your investments if you will build your property now. Remember, the inflation rate in RP is 10% every year. Meaning if that 3M pesos was your construction value 5 years ago,then you are under insuring it, you can’t build a new building with the same cost. It should be around 4M-5M now.
Under insurance means If an item is underinsured and the insured risk occurs then the insured will only get a proportion of the damage that occurs.
For example a house worth P400,000, is insured for P300,000 and a fire occurs in the kitchen causing P100,000 damage. As the house is only insured for ¾ of its value. The insured will only get ¾ of the damage. That is P75, 000.
The average clause applies, when a partial loss occurs and the risk is underinsured.-Annie Patton.
This is the principle of Average Clause. I believe this very important clause was ignored by many in the Philippines thus leaving all insured buried with regrets after the loss and of course the fastest way to relive pain is to blame it on the agent or insurance companies.
If your property is more than 5M, its best to have an independent appraiser to know the actual value and replacement value of your property today. This should prevent you from under insurance and over insurance. Thus, saving you money now with annual premium and in the future for possible losses.
If your property is used for business e.g. warehouse or factory, most of you will not mind the structure now, for reasons that its an old building its only a warehouse, etc. Your not a businessman in that case! For the inventories, you should declare the average daily stocks on hand to suffice the lost in case it happens now!
If you are renting, you can insure the furnitures and equipments even without insuring the house or condo but its always best to ask your landlord if he/she wants insurance as well.
If you notice, i never wrote examples of Overinsurance, i never encountered it yet. However, people who tries to over insure will surely commit either an arson or a suicide. This is purely logical answer. hehe! I haven’t met someone who wants to pay more and gets less!
In a nut shell, Insurance will only bring you back at your current state before the loss arises. No one should get rich or poor via insurance. Unless, other wise the average clause is ignored!
