Anand Kumar Dwivedi owns a restaurant, which he had bought three years ago for ₹20 lakhs. He had bought a fire insurance Policy worth ₹16 lakhs (which is the written down value of his insured property). His restaurant ca

Insurance contracts are contracts of indemnity. Indemnity means making good of the loss by reimbursing the exact monetary loss. It aims at keeping the insured in the same position he was before the loss occurred and thus prevent him from making profit from insurance policy. In the present case, though he has taken insurance for ₹16 lacs for the property value of ₹20 lacs, the actual loss is ₹5 lacs, so the settlement will be in the following way: Rs. (Sum insured / value of insured assets)* actual loss Rs. (16 lacs/20 lacs)*5 lacs= ₹ 4 lacs Average clause enumerates - If the property hereby insured shall at the breaking out of any insured peril be collectively of greater than the sum insured thereon, then the insured shall be considered as being his own insurer for the difference for the difference, and shall bear a rateable proportion of the loss accordingly. Every item, if more than one, of the policy shall be separately subject to the condition.