What Does Pro Rata Distribution Clause Mean?
A pro-rata distribution clause is a provision in property insurance contracts according to which the insurer allocates a certain amount to every property insured in just one policy.
The allocation varies. The biggest insurance money is meant for the property with the most value and the lowest is for the one with the least value. Allocation is changed when one property becomes more valuable over time.
Insuranceopedia Explains Pro Rata Distribution Clause
For business owners, a pro-rata distribution clause in property insurance is ideal when they have properties in different locations. Instead of buying one insurance policy for each property, they can instead purchase one that can insure all of them at different amounts.
The insurance money is distributed according to the value of the properties, with the biggest amount is earmarked for the most valuable property.
The insured is responsible for notifying the insurer about any changes in the value of their insured properties. This allows the distribution of insurance limits to change along with the value of the properties.