Three-Fourths Value Clause

What Does Three-Fourths Value Clause Mean?

The three-fourths value clause was included in some property insurance contracts. It stated that the insurance company would not be liable to pay more than 75 percent (or three-fourths) of the cash value of the property. For example, if your house worth $100,000 were to burn down, an insurance policy with this clause would provide coverage up to $75,000 for the claim.

Insuranceopedia Explains Three-Fourths Value Clause

Insurance companies used the three-fourths value clause to encourage policyholders to take better care of their property. The idea was that, since policyholders would have to pay a significant portion of the loss, they would be more cautious and avoid careless damage. In exchange, policyholders who accepted this clause could obtain coverage at a lower rate.

Today, the three-fourths value clause is rarely used. Instead, policyholders can achieve a similar benefit by choosing policies with less coverage or by accepting higher out-of-pocket costs, such as deductibles and coinsurance. Homeowners looking for lower premiums can now compare homeowners insurance quotes across insurers to find the right balance between coverage amount and what they pay each month. Another common way to lower a premium is to raise the deductible, which works on the same idea the three-fourths clause once applied: the policyholder takes on more of the loss in exchange for a cheaper policy.