Pro rata is Latin for proportionate allocation; in insurance, pro rata involves the process of determining the amount of premium due/ payable for an insurance policy that only spanned and covered part of the coverage term. Pro rata involves adjusting insurance payments in proportion to a partial/ incomplete period or dividing liability amongst insurers and the insured (insurance buyer) to the extend of insurance coverage.
Pro rata may also refer to claims that are only paid out in proportion to the insurance interest in an asset (in this sense, it is also known as the first condition of average). For example, if 75% of the value of an asset (an apartment, an office, etc.) is covered by insurance, the policy may entail that only three-quarters of the cost of any damage will be subject to a claim. Any additional costs must be paid out either by the policyholder or by additional insurance coverage. Such a term is known as the pro-rata condition of average.
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