Pro Rata Distribution Clause

Definition of "Pro rata distribution clause"

Shelly-Ann Welch real estate agent
Shelly-Ann Welch, Real Estate Agent The Listing House

Provision in many property insurance policies that automatically distributes coverage over insured property at various locations in proportion to their value. For example, if an insured buys a $100,000 policy to cover three properties worth $75,000, $30,000 and $20,000, the insurance (which would not be enough to cover a total loss) would be distributed in the same manner. If the $75,000 property were totally destroyed, the insured would receive 60% of the value of the insurance, or $60,000, because that property represents 60% of the covered property. If the insured buys adequate coverage, this clause is important because it can spread the insurance to different locations as inventories decrease or increase, rather than forcing the insured to constantly revise the coverage.

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