The proportional rule cuts a settlement when the sum insured is too low. A waiver of average is the policy clause that, on some wordings and on some terms, stops it from doing that. It is worth understanding precisely what it does and does not cover before treating it as a solution.
What the clause actually does
Where the standard proportional rule applies the reduction from the first euro of under-declaration, a waiver of average changes that in one of two ways, and the two are not the same protection:
- A tolerance margin. The rule still applies, but only once the shortfall between the declared sum and the true value passes a stated threshold — commonly 10 or 15 per cent on the wordings that offer this. Under-declare by less than the margin and the rule does not bite; over it, and it applies to the whole shortfall, not just the excess.
- A full waiver. The insurer agrees not to apply the proportional rule at all, within whatever conditions the wording sets — typically that the sum insured has been calculated on a specified basis and is kept under periodic review. This is the stronger protection, and it is priced and conditioned accordingly.
Neither version is permission to under-declare deliberately. Both exist to absorb an honest error in an otherwise properly-calculated figure — see setting the rebuild value for how that figure should actually be built.
What it typically costs
A waiver of average is generally priced as an addition to the base premium, because the insurer is accepting more of the risk that the declared figure turns out to be wrong. The cost varies by wording and by how large a tolerance or how complete a waiver is being bought. What it is being weighed against is worth stating plainly: the cost of the waiver, against the cost of a proportionally-reduced settlement on a genuine claim, is rarely a close call once you have seen what the rule actually does to a real loss.
What keeps the waiver valid
Most waivers are conditional, not unconditional. Commonly, the wording requires the sum insured to be calculated on a stated method at inception, and to be kept current — through an indexation clause being applied automatically, or through a periodic revaluation the policyholder is responsible for requesting. Read what the clause requires of you as carefully as what it grants: a waiver that lapses because a renewal review was skipped is not a waiver at the moment it is needed.
Where agreed value fits
Agreed value is a related but distinct mechanism, usually applied to specific scheduled items rather than the building sum insured as a whole. On that basis, the settlement figure is fixed in the contract at inception, on the strength of a valuation, and paid at that figure rather than tested against the rule at claim time. It does not automatically extend to the rest of the policy — the building sum insured and any unscheduled contents remain exposed to the proportional rule unless the wording specifically says otherwise.
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Adler & Rochefort is a commercial brand of Ownizo, Unipessoal Lda., registered with the Portuguese Insurance and Pension Funds Supervisory Authority (ASF) under no. 425591790/3. General information only, not personalised advice; whether a waiver of average is available, its terms and its cost are specific to each insurer's wording and should be confirmed in writing before you rely on it.
More on this subject: Underinsurance and the proportional rule · Setting the rebuild value