General Insurance PrinciplesQuestion 136 of 474
A homeowner has two policies on the same dwelling: Policy A with a $300,000 limit and Policy B with a $100,000 limit. A covered loss of $80,000 occurs and both policies share on a pro rata basis. How much does Policy A pay?
a.$60,000
b.$40,000
c.$20,000
d.$50,000
Explanation
Pro rata: each policy pays the share of the loss equal to its limit divided by the total of all applicable limits. Policy A pays 300,000 / 400,000 = 75% of $80,000 = $60,000. Policy B pays the remaining 25% = $20,000. Indemnity still limits total recovery to the actual $80,000 loss.
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