JAMB Commerce 2013 Paper

Concept:The average clause ensures that when a property is under-insured, the policyholder bears part of the loss.Explanation:From the table, Mr. N has an insured value of $\mathrm{N}30{,}000$ while the total cost of the property is $\mathrm{N}100{,}000$.The actual loss suffered is $\mathrm{N}25{,}000$.Such a loss is not fully payable because the property was insured for less than its full value.Under the average clause, the compensation is:$$\text{Claim} = \text{Loss Suffered} \times \frac{\text{Insured Value}}{\text{Total Cost}}$$Substitute the values:$$\text{Claim} = \mathrm{N}25{,}000 \times \frac{\mathrm{N}30{,}000}{\mathrm{N}100{,}000}$$$$\text{Claim} = \mathrm{N}25{,}000 \times 0.3$$$$\text{Claim} = \mathrm{N}7{,}500$$Answer:Mr. N's compensation is $\mathrm{N}7{,}500$.The correct option is B. $\mathrm{N}7{,}500$.