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.
