What is an Abandonment Clause?

An abandonment clause is a provision in an insurance contract that ensures full compensation in the event of abandonment.

How Does an Abandonment Clause Work?

For example, suppose a company has an insurance policy on a machine, and the machine is damaged to such an extent that it is not worthwhile to pay for the repairs. The company may abandon the machine and collect on the insurance policy via the abandonment clause.

Why Does an Abandonment Clause Matter?

If the owner of an insured asset or property chooses to abandon it, an abandonment clause ensures that the insurer will pay the full coverage amount if the asset or property has damage that exceeds the asset's market value.