Which insurance terms and conditions can reduce a policyholder's entitlement to full indemnity following a loss?

The correct answer is that both an average clause and a policy excess can reduce a policyholder's entitlement to full indemnity following a loss.

An average clause is often included in property insurance policies to ensure that the policyholder insures the property for its full value. When a policyholder underinsures their property, the average clause will come into play, and in the event of a loss, the insurer may only pay a proportion of the claim. This is calculated based on the level of insurance in relation to the actual value of the property at risk. Therefore, if a policyholder has insured their property for less than its value, they will not receive full indemnity, as the claim settlement will be adjusted downwards according to the average clause.

A policy excess, on the other hand, refers to the amount that a policyholder must pay out of their own pocket when they make a claim. For example, if a policy has an excess of $500 and the loss is $2,000, the insurer will only cover the remaining $1,500 after the excess is deducted. This means that the policyholder is not entitled to the full amount of the loss but rather a reduced amount after accounting for the excess.

Both of these mechanisms work