Under pro-rata, the insured will receive payments that sum to the amount of the loss.

• A. True
• B. False
• C. Only if there is no deductible
• D. Only if the loss exceeds both policy limits

Answer: (A)

Pro-rata means the loss is shared among all applicable insurers in proportion to each policy’s limit. Each insurer pays a part of the loss equal to that policy’s share of the total limits, and when you add those shares together you get the total loss amount that the combined coverage can handle, as long as the loss is within the combined limits and deductibles are accounted for.

For example, if two policies cover the same loss, one with a 60,000 limit and the other with a 40,000 limit, the total available coverage is 100,000. If the actual loss is 50,000, the payout would be 60% from the first policy and 40% from the second, totaling 50,000. The payments from all carriers together equal the loss.

The result holds as long as the loss does not exceed the total coverage available and you’re not dealing with deductible or other reductions that would subtract from each policy’s portion.