Which situation would most likely invoke a pro-rata application in insurance claims?

In the context of insurance claims, a pro-rata application is typically invoked when there is underinsurance of a property. This situation arises when the insured value of the property is less than its actual market value at the time of the loss.

In such cases, the insurer may apply a pro-rata method to determine the payout for the claim. This means that the insurer will only pay a proportion of the loss based on the ratio of the insured amount to the actual value of the property. For example, if a property worth $100,000 is insured for $60,000, and a loss occurs amounting to $10,000, the insurer would only pay out 60% of the loss, resulting in a payout of $6,000. This method ensures that the policyholder does not receive a windfall from the claim while also taking into account the level of risk the insurer has accepted based on the premium associated with the insured amount.

In contrast, the other choices would either not trigger a pro-rata application or would involve different insurance methodologies. Full replacement coverage typically ensures that the policyholder can recover the full cost to replace the item, while insured amounts matching the market value would mean there’s sufficient coverage, negating the need for a