Pro Rata

What Does Pro Rata Mean?

In insurance, pro rata commonly applies to situations where policyholders receive reimbursement for losses that are proportional to the amount of coverage they hold for the entire insured asset.

Insuranceopedia Explains Pro Rata

For example, if a policyholder has $100,000 worth of property insurance coverage for a house valued at $200,000, the coverage represents 50% of the property’s total value. In a pro rata arrangement, the reimbursement would be proportional to the coverage. So, if the homeowner files a claim for $50,000 in damages, they would receive only $25,000, reflecting the 50% coverage of the total value. Avoiding this kind of shortfall is one reason it pays to figure out how much homeowners insurance you actually need before you buy, since the coverage limit you choose sets the ceiling on what an insurer will pay out. Comparing the best homeowners insurance companies before you buy is also worth the time, because how a carrier handles partial losses can vary from one policy to the next.