Pro Rata Insurance

What Does Pro Rata Insurance Mean?

Pro rata insurance is a type of policy that ensures payouts are made in a proportionate manner, as deemed standard by the industry. It involves an estimate based on the amount paid for insurance in relation to the property’s value, the coverage period, or the risk. This method applies to various insurance transactions, such as payouts or policy cancellations.

Insuranceopedia Explains Pro Rata Insurance

Pro rata is a condition applied when an insurer pays a claim to the insured. First, the insurer does not pay more than the actual loss. Second, the payout is calculated based on a proportionate formula. For example, if X buys $100,000 in flood coverage for a property worth $300,000 and the property sustains $60,000 in flood damage, the insurer, using pro rata calculation, will pay $20,000. This amount is proportionate to the ratio of the insured amount to the actual property value (one-third of the actual value).