What is a Declaration Policy?

When the value at risk under an insurance policy varies from time to time during  the period of the policy, it may be necessary to insure an aggregate amount in lieu of a fixed sum insured. This occurs when stocks in warehouses are insured. As the stock value fluctuates frequently, the declaration policy is granted.

• A minimum sum - insured is required.
• A monthly declaration form is to be submitted by the end of the month, failing which the full sum insured under the policy will be taken to be declared.
• Declarations are usually based on the market value of stocks.
• Refund or the adjusted premium is calculated according to the declarations and usually does not exceed 50% of total premium.

Illustration:
Sum Insured :$10,00,000
Rate            :$1 per $1000 sum insured
Premium      :$1000
Monthly Declarations:
Jan                $50000
Feb                $ 60000
Mar                $45000
Apr                 $58000
May                $42000
Jun                 $70000
Jul                  $80000
Jul                  $65000
Aug                 $75000
Sep                 $85000
Oct                  $70000
Nov                 $46000
Dec                 $34000

Total               -------------
Declarations   $7,80,000
                       -------------

Average Declarations      $65,000
Premium                        $1000
Premium on Average       $650

Refund                         -------------
                                      $450
                                     ------------
As the refund is less than 50% of the total premium of $1000, the final refund also works out to $450.