Can you provide a calculation/example of how the Condition of Average principal would operate?

October 30, 2020

Example:
Rebuilding Cost of the Home
Policy Sum Insured
Amount Claimed
Amount Paid
$200,000
$100,000
$ 75,000
$ 37,500
In the above example, the policy sum insured is only 50% of the rebuilding cost (i.e. $100,000 / $200,000). Since this is outside the 85% concession allowed by the policy, the amount paid is reduced by the degree of under-insurance. The degree of under-insurance is 50%. So the amount claimed ($75,000) is reduced by 50% to $37,500.
If your sum insured was $170,000, this equates to 85% of the rebuilding sum insured – the amount claimed of $75,000 would be paid in full.