If Mr. N takes a fire insurance policy with average clause; his compensation will be?

A. N 5000
B. N 7, 500
C. N 70, 000
D. N 75, 000

Correct Answer:

Option B – N 7, 500

Explanation

Average clause: A clause in a policy requiring that, where assets are insured for less than their full value, the insured is required to bear a proportion of any loss.

The actual amount of claim is determined by the formula:

Claim = Loss Suffered x Insured Value/Total Cost

30,000 x 25,000 = 750,000000
750,000000 /100,000 = 7,500