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.

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%.

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.