If a property loss covered by a homeowners policy is also covered by another policy, how does the homeowners policy pay?

If a property loss covered by a homeowners policy is also covered by another policy, how does the homeowners policy pay?

• A. The full loss up to its limit
• B. Proportion of the loss equal to its liability limit relative to total protection
• C. Nothing until other policy pays first
• D. Only the deductible amount

Answer: (B)

When more than one policy covers the same loss, payment is shared proportionally to each policy’s limits. The homeowners policy doesn’t simply pay its full limit if another policy also covers the loss; instead, each policy pays a portion of the loss equal to its limit divided by the total applicable limits of all policies. For example, if the homeowners policy has a $100,000 limit and another policy has a $300,000 limit, total coverage is $400,000. If the loss is $50,000, the homeowners policy would pay 50,000 × (100,000/400,000) = 12,500, and the other policy would pay 37,500 (assuming both policies apply and deductibles are accounted for). This pro rata approach explains why the homeowners policy pays a share proportional to its limit relative to total protection.

When more than one policy covers the same loss, payment is shared proportionally to each policy’s limits. The homeowners policy doesn’t simply pay its full limit if another policy also covers the loss; instead, each policy pays a portion of the loss equal to its limit divided by the total applicable limits of all policies.

For example, if the homeowners policy has a $100,000 limit and another policy has a $300,000 limit, total coverage is $400,000. If the loss is $50,000, the homeowners policy would pay 50,000 × (100,000/400,000) = 12,500, and the other policy would pay 37,500 (assuming both policies apply and deductibles are accounted for). This pro rata approach explains why the homeowners policy pays a share proportional to its limit relative to total protection.