Can you explain the ‘average clause’ in a fire home insurance policy?

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Asked April 7, 2014

1 Answer


Many types of insurance policies, including a fire policy, use a phrase similar to "subject to average," which effectively lowers the potential payout on claims for losses. Though it may be worded in various ways, the average clause generally states that the insurer will only pay a proportional amount of the actual property value. Policies which use this clause are called average policies.

Average policies can be confusing. For example, if you had a building and a fourth of it was lost in a fire, the policy would not pay out a quarter of the policy value, but would pay a depreciated amount calculated from a quarter of the building value. This is a variation on the standard home Actual Cash Value policy.

If you want to insure your property for the full value of the property and contents, you need to make sure that you fire policy states that it is for Full Replacement Value coverage. This upgrade to your policy will add a bit to your premiums, but will fully replace any items lost in a fire, rather than paying according to the average clause.

Aside from saving you a bit in premiums, an average policy does not work for the policyholder as well as for the insurance company. The average clause reduces the risks for the insurance company on an annual basis as the building and contents slowly lose face value. Over the course of 5 to 10 years, much of your personal property could devalue to the point where you are only able to recoup pennies on the dollar, leaving you to pay the remainder out of pocket.

Answered April 7, 2014 by Anonymous

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