Average Clause

An average clause is a provision in an insurance policy that addresses how to handle a situation when the insured and the insurer disagree on the value of a claim or the amount of loss. It involves calculating a proportional adjustment to ensure fairness. Essentially, if the insured has insured the property for less than its actual value, the payout will be reduced proportionally, reflecting the ratio of coverage to actual value. This prevents the insurer from paying the full claimed amount if the insured was under-insured, encouraging accurate insurance coverage.