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If a loss amount and the market value of the loss suffered is greater than the amount for which it was insured the insured will suffer from a partial loss that is because of UNDER INSURANCE i.e The insurance policy some insured lower than the real value of the interest insured.
The insurer will not pay the full value of the loss and the insured wiil retain the difference as a proportionate share .
THE RATIONALE behind is that the initial premium paid by the insured is calculated from the policy value that estimated by the insured at inception and not from the actual value as appeared after incident . hence the intial premium being charged for the insurance coverage and already paid by the insured is less than the actual premium .
That to say in such case ( under insurance ) average clause operates and the insured share the insurer in both premium and claim .
Regards .
