Definition - What does Distribution Clause mean?
A distribution clause is a provision in a property insurance policy that splits coverage among two or more properties by assigning them a specific percentage. This is often used when the properties are located in different locations.
Insuranceopedia explains Distribution Clause
Supposing Mr. X has three buildings. One is located in Street A, another is located in Street B, and the third one is located in Street C. The property located on Street A is the most expensive, the one in Street B is less expensive than the one in Street A, and the building in Street C is the least expensive.
With a distribution clause in his property insurance, the Street A building could be assigned 50% of the coverage, the Street B building could be assigned 30%, and the Street C building could be assigned the remaining 20%.
With the insurance limit of $1,000,000 to cover the three buildings, Street A building gets the maximum amount of $500,000 for loss of damage while Street B and C buildings get $300,000 and $200,000 respectively.