Which clause in an insurance policy limits the value of a claim due to under-insurance?

The Average Clause is a critical component in insurance policies that addresses the issue of under-insurance. When a property is insured for less than its actual value, this clause comes into play to limit the payout on a claim. Essentially, it states that if the insured value is less than the actual value of the property at the time of a loss, any claim payment will be reduced in proportion to the amount of under-insurance. For instance, if a property worth €100,000 is insured for only €80,000, in the event of a claim, the payout will be adjusted to reflect that the insurance coverage was insufficient. This encourages policyholders to insure their assets for their full value to ensure adequate coverage and avoid significant financial loss.

The other options—No Claims Bonus, Subrogation, and Loading—serve different purposes in the context of insurance. A No Claims Bonus rewards policyholders for not making claims with discounts on future premiums. Subrogation allows the insurer to recover costs from a third party responsible for a loss after compensating the insured. Loading refers to an additional charge added to the premium due to higher risk assessments. None of these options directly address the limitation on the value of a claim due to under-insurance like the Average