Pro Rata Insurance

Definition - What does Pro Rata Insurance mean?

Pro rata insurance is a kind of policy that upholds a standard of payout that the industry deems proportionate. It is the estimate based on the amount paid for insurance vis-a-vis a property, the covered period, or the risk. This is applicable to many insurance transactions, such as insurance payout or cancellation.

Insuranceopedia explains Pro Rata Insurance

Pro rata is a condition that is applied when the insurer pays a claim to the insured. First, the insurer doesn't pay an amount that exceeds the loss. Second, the insurer pays according to a set calculation. Supposing that X bought $100,000 for a flood peril on a property that is actually worth $300,000. It eventually gets damaged by flood and the cost of the damage is $60,000. Using pro rata calculation, the insurer will pay the insured just $20,000 proportionate to the ratio of paid premiums compared to the actual worth of the property ( a third of the actual value).

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