Three-Fourths Loss Clause

What Does Three-Fourths Loss Clause Mean?

The three-fourths loss clause was a provision in property insurance that limited the insurance company’s liability to no more than 75 percent (or three-fourths) of the loss or damage. For example, if you filed a claim for $100 in property damage covered by your insurance policy, the company would only be required to pay up to $75.

Although it is no longer in use today, the clause was historically common in property and marine insurance policies.

Insuranceopedia Explains Three-Fourths Loss Clause

Insurance companies used the three-fourths loss clause to encourage policyholders to be more cautious with their property and reduce the likelihood of excessive claims. The idea was that, since policyholders would need to pay a substantial amount out-of-pocket for each claim, they would take more precautions to avoid using their insurance. In return, insurance companies offered policies with this clause at a lower price. Today, a similar effect can be achieved by setting a higher deductible, which results in a lower premium in exchange for reduced coverage.