A deductible average clause excludes partial losses amounting to less than what percent?

A deductible average clause excludes partial losses amounting to less than what percent?

• A. 1 percent
• B. 3 percent
• C. 5 percent
• D. 10 percent

Answer: (B)

A deductible average clause uses a franchise-style threshold that excludes small losses from payment. The clause sets a percent of the insured value as the minimum loss that will be paid. Here, that threshold is 3 percent. If a loss is less than 3 percent of the insured value, nothing is paid; if the loss exceeds 3 percent, the insurer pays the full loss amount up to the policy limit (no further deductible subtraction). For example, with a 3% franchise on a $100,000 policy, losses under $3,000 are not paid, while a $4,000 loss would be paid in full (subject to limits). This differs from a standard deductible, where every loss is reduced by the deductible amount.

A deductible average clause uses a franchise-style threshold that excludes small losses from payment. The clause sets a percent of the insured value as the minimum loss that will be paid. Here, that threshold is 3 percent. If a loss is less than 3 percent of the insured value, nothing is paid; if the loss exceeds 3 percent, the insurer pays the full loss amount up to the policy limit (no further deductible subtraction). For example, with a 3% franchise on a $100,000 policy, losses under $3,000 are not paid, while a $4,000 loss would be paid in full (subject to limits). This differs from a standard deductible, where every loss is reduced by the deductible amount.