Sitting Duck Asset Protection

General - eg. home and contents, car, public liability, professional indemnity, health, consumer credit, travel, boat etc.

General is either based on 'Indemnity' policies or 'Replacement Value' policies.

Indemnity value policy compensates the insured to the extent of the loss suffered leaving the insured no better off than they were prior to the loss or damage.
Replacement value policy entitles the insured to have the damaged or lost property replaced with new property equal in value to the previous existing property. The sum insured should reflect the replacement value.

If the sum insured is less than 80% of the value of the property, there will be a penalty. The penalty is normally known as an average or 'coinsurance' clause.

Example of 'Coinsurance':

If there is a total loss the amount paid will be for what it was insured for. If a partial loss then it will be averaged on the 80% value. eg. a partial loss of $40,000 occurs where the property is insured for $75,000, but the property is really worth $110,000.
Therefore: $110,000 x 80% = $88,000 ($75k is less than 80% so coinsurance applies).
$75,000 / $88,000 = 0.852 = 85.2%
Amount payable would be $40,000 x 85.2% = $34,080.

The insured would have to bear the difference.