When you buy insurance policies or agree on the policies you need with your agent, the conversation tends to contain a lot of information. It’s easy to get lost in a storm of exclusions, deductibles and clauses. A lot of people allow that information to pass them by. They assume it’s all standard information and that the most important insurance clauses are the ones they discussed before the purchase.

The thing is, there are clauses that are included in many insurance policies that wouldn’t automatically be discussed. Some of these could make a real difference to the outcome of a claim. Which means they have an impact on your cash flow. But if you don’t find out about them early, they could take you by surprise.

Average Clause

Like many insurance clauses the average clause is designed to protect the insurance company from deceptive or incomplete applications. Unfortunately, many insurance buyers attempt to under value potential losses in order to reduce the premium. The average clause ensures that the insurance company only pays out based on the level of coverage. For example if you insure a property worth $100,000 for $50,000 and claim for $20,000 worth of damage, the insurance company only has to pay $10,000 under the average clause. Because you only insured half the value, you only receive half the payout.

Hammer Clause

The hammer clause is another one that takes people by surprise. And not because it makes it illegal to ‘touch this’. Nineties humor aside, the hammer clause could cause real friction between insured and insurer. The clause dictates that, in the case of a liability payout, the insured cannot overrule an insurance company decision to settle a case. Even if you want your day in court, the insurance company has the final say. Insurance clauses like the hammer clause can cause real tension, so it’s important to check for it whenever you buy liability insurance.

Other Insurance Clause

Similar to the average clause, the other insurance clause is designed to protect insurance companies from overpaying. If you have two insurance policies for the same risk, both companies pay for the loss in proportion to the level of coverage. Standard insurance clauses like these may sound like common sense, but there are buyers out there who try to use multiple policies to hide previous exposure to risk. It’s a vital clause in ensuring the integrity of insurance coverage.

These insurance clauses and others like them are further evidence in favor of the best piece of advice we can give you on insurance. Always read over policy documents and talk to your insurance agent before you buy a policy. It’s your risks that are covered, so you need to understand what happens when you have to claim.

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