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Property insurance: What is an abandonment clause? Definition & Examples

Updated on November 19, 2010

What is an abandonment clause?

An abandonment clause in a property or building insurance contract allows the owner to collect the full settlement amount while also abandoning the lost or damaged property in question.

An abandonment clause would be utilized when a property becomes so damaged that the cost of repairing it is greater than its original value - or if the property cannot be recovered at all!

Abandonment clauses can be particularly popular in the field of marine property insurance, as you'll soon understand after reading the example below.

If the total cost of repairing a damaged building is more than its original value, you may find yourself very glad to have an abandonment clause in your insurance contract!
If the total cost of repairing a damaged building is more than its original value, you may find yourself very glad to have an abandonment clause in your insurance contract!

Examples of when an abandonment clause might be utilized

Nautical Nonsense

Say you have a beautiful yacht that got lost at sea in a terrible hurricane, or some idiot of a friend "borrowed" it for a trip across the Atlantic and managed to sink the thing. It might be kind of hard to find the sunken wreckage of your pleasure boat, hence you'll be thankful that you have an abandonment clause in your insurance contract because you will not have to keep looking for the damaged property before getting a settlement.

Terrible Damage

Say, alternately, that a building of yours incurred terrible damage in a major earthquake or fire - so much damage that the cost of restoring it to its original condition would be greater than what you originally paid for the thing. In this case, you would certainly want to throw up your hands and go for the abandonment clause, as there's no point in spending extra money on restoring the poor damaged building - unless it had particular sentimental value, that is.

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