Pro Rata Clause

What Does Pro Rata Clause Mean?

A pro rata clause in an insurance policy specifies that each insurer providing coverage for an asset will pay claims in proportion to the percentage of coverage they provide for that asset. Pro rata clauses ensure fair distribution of claims payouts when multiple insurers cover the same asset. This kind of split most often comes up when a property is covered by more than one carrier, which is something to look at when you compare quotes from the best homeowners insurance companies.

Insuranceopedia Explains Pro Rata Clause

To understand how a pro rata clause works, imagine two insurers cover a single asset, with one providing 60% of the coverage and the other providing the remaining 40%. If a loss occurs and the policy includes a pro rata clause, the insurer providing 60% of the coverage will pay 60% of the claim, while the insurer providing 40% will pay 40%. The same setup is common in business insurance, where a company might hold a primary policy plus a layer of general liability insurance from a different carrier, and any claim that falls under both gets split the same way.

In essence, pro rata clauses ensure that no single insurer is left covering the entire claim when multiple insurers are providing coverage for the same asset.