What is Margin Clause?


Nowadays, it is commonly seen in market that Clients are asking for 'Margin clause' as well as 'Waiver of Under insurance' in many property policies. 
At the same time they are demanding Underwriter's confirmation for clubbing of these two clauses in the event of claim so as to enjoy higher 'Waiver of Under insurance'. 
Unfortunately, some Companies are agreeing to this unknowingly. 
This understanding is wrong and should not be accepted because these two can not be clubbed in the event of claim.

At the same time it is also to be understood that margin clause and escalation clause are two different covers and while  applying Underinsurance, the benefit of increased sum insured would be allowed only if insured has taken escalation clause by payment of additional premium. Margin clause says that in case of sum insured variation up to 10%, whether up or down, no adjustment of premium is required to be done.

This should not be confused with escalation provision under the policy. As per this clause neither Insurance Company can demand additional premium nor insured can demand refund in the event of up to 10% variation in value of property.

Margin clause is not applicable in the event of a claim.
Standard wordings are as under

It is hereby understood and agreed, subject otherwise to the terms, conditions and exclusions of the Policy and endorsed hereon, that no adjustment shall be made unless the values reported represent an increase of more than 10% (or unless otherwise more specifically mentioned in The Schedule) from the initial values reported. This is to include fluctuations, which may occur in the values of property under the Policy which are automatically held covered.
The premium shall be proportionately increased for the unexpired term of the Policy for the increase in values when such an adjustment becomes applicable.

Comments

  1. AvinashJuly 24, 2020 at 8:43 PM

    Sir, can u explain margin clause with help of example? Adjusted of premium

    ReplyDelete
  2. V.P SharmaAugust 9, 2020 at 1:24 PM

    Already explained in my note.

    ReplyDelete

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