The declaration policy is designed to give better protection in cases where the stock fluctuates from time to time. Under the declaration policy, the insured takes out insurance for the maximum amount that he considers would be at risk during the period of the policy. On a fixed date of every month or a specific period, the insured furnishes a declaration of the amount.
The premium is provisionally paid to 75% of the annual premium amount. The exact annual premium is determined on the average of these declarations; If the premium is higher than the provisional premium already paid, the insured has to pay the difference to the insurer. On the other hand, if the premium so calculated is lesser than the premium already paid, the excess is returned to the policyholder.
The declaration must be made on a specified day or within the next 14 days. Otherwise, the sum insured will be considered as the declared value.
The great advantage of this policy is that the premium is limited to the actual amount at risk irrespective of the sum insured. The value of risk is an average of each day of the month or the highest value at risk during the month. Premium is adjusted at the expiry of the policy.
Declaration policy is not available for
- short period,
- stock in process, and
- stock at the railway siding.
The policy is issued only to reputed concerns as declaration offers scope for fraud because the insured may pay a lesser premium by undervaluing the stock.