"Average" Calculator

It is important that the sum insured on your policy reflects as close as possible, the true value of your home. If not, an insurance principle called "Average" applies. Simply stated, if at the time of loss the property is insured for less than the replacement value, the insured is considered to be the insurer for the difference between the full replacement value and the sum insured. If there is a partial loss, that loss will be settled in proportion of the sum insured to the replacement value.

Example:

  • Contents insured for $100,000.00
  • Replacement value of contents is determined to be $200,000.00
  • The contents sustain a loss of $50,000.00

It is important that the Sum Insured on your policy reflects as close as possible, the Replacement Value. If not, the insurer will settle the Loss as follows:

(Sum Insured x Loss) / Replacement Value that is ($100,000.00 x $50,000.00) / $200,000.00 before any deductible which may apply.

Therefore, the insurer will settle the Loss for $25,000.00 less any applicable deductible which may apply.

Why not use our "Average" calculator to show the effects of underinsurance:

Settle Amount: less applicable deductible.

Insured's Contribution To The Loss: in addition to applicable deductible.

Thing to Remember:

  1. If the Sum Insured is less than 50% of the Replacement Value the insured's contribution will be greater than 50% of the Loss.
  2. If Loss is equal to or exceeds Sum Insured (Loss >= Sum Insured) the policy will pay the Sum Insured less the applicable deductible.
  3. The "Average" Calculator does not apply when the Sum Insured is equal to or more than the Replacement Value (Sum Insured >= Replacement Value).
  4. Settlement should never exceed the Sum Insured.
  5. Deductible will affect final settlement; where a Deductible or Excess exists on a Policy, this will be subtracted from the final payment of any claim after the operation of the Condition of Average.
  6. Having your building insured, does not mean that your contents are covered as well.

Condition of Average:

This means that if the Sum Insured is less than it should be (known as underinsurance) you will not receive reimbursement for the full amount of any loss the Policy responds to.

In the event your property is underinsured then the Condition of Average will operate to reduce the net amount you will receive from a valid claim, in direct proportion to the amount of underinsurance.

For example, if you have a Sum Insured that is only 50% of what it should be, you will only receive 50% of any valid claim. Similarly, if you insure for 75% of the correct amount, you will receive only 75% of any valid claim.

Please note that in the event of a total loss, the policy will pay the lower of the amount of the loss or the sum insured. This means that in the event of your being underinsured and having a total loss, you will receive only the sum insured, which will not reimburse you for the full amount of any loss you may have suffered.

The basic concept of insurance is that insured persons contribute to a pool based on the risk (the value of their property) they bring to the pool. If the insured does not pay premium based on his full exposure e.g. if he only insures 50% of his risk, then he has contributed less to the pool than he should. Because of this, he cannot take out of the pool the full amount (100%) of his loss, but rather would get the percentage of the loss that he contributed in premium to the pool.

The basis for calculating your Sum Insured is set out in your Policy wording, you may also use the "Average" Calculator on this page, but we recommend that a professional valuation or appraisal be carried out at regular intervals. If you have any questions about the way the Condition of Average may effect you, please feel free to contact us.

If you do not have your contents insured or need to increase your insurance on either the building or contents, call or email your Customer Service Representative.