Insurance glossary
Average clause
Also known as: under-insurance, underinsurance, condition of average
Quick definition
A policy condition that reduces a claim payout in proportion to how much a vehicle or item was under-insured. If you insure something for less than its true value, the average clause means even a partial-loss claim is only partly paid.
Understanding Average clause
Under-insurance is treated as paying for only part of the risk, so the insurer pays only part of the loss. If a car is insured for R150,000 but is genuinely worth R300,000, it is 50 percent under-insured, and the average clause can cut a partial-loss claim — say R40,000 of repairs — to roughly half. The shortfall is yours.
It bites hardest on partial losses, because a total loss is simply capped at the (too-low) sum insured, whereas a repair claim is scaled down by the under-insurance ratio. Many owners are caught out because they under-insured deliberately to lower the premium, not realising the clause quietly transfers the saved risk back to them at claim time.
The defence is to insure at the correct value and keep it current. On a vehicle this means matching the sum insured to a fair retail or market value each year; on accessories or contents add-ons it means declaring realistic replacement values rather than guesses.
Related terms
Definitions reviewed by the OneCompare editorial team. OneCompare (Pty) Ltd is an Authorised Financial Services Provider (FSP 55551).
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