What Does Pro Rata Mean?
Pro rata refers to things that are distributed or divvied out in a means that is proportional.
In the context of insurance, pro rata often refers to situations in which policyholders can only receive reimbursement for losses that are proportional to the amount of coverage that they have for the entire insured asset.
Insuranceopedia Explains Pro Rata
Say a policyholder has $100,000 worth of property insurance coverage for a house that is worth twice as much, at $200,000. In this situation, the total coverage is only worth 50% of the total value of the asset. If that coverage was in a pro rata setup, the coverage would have the same proportion. This means that if the homeowner files a claim for $50,000 of damages, they would only receive $25,000 of it, representing the percentage of coverage for the total amount (in this case, 50%).