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What is Apportionment?

Apportionment is applicable to different types of contexts, including in insurance. When it comes to insurance, apportionment refers to dividing a loss among all the insurance companies that provide coverage for a specific property. This division helps establish the portion of responsibility held by each insurer.

For instance, if two insurance providers each cover ₹50 lakh of a ₹ 1 crore property and the property is damaged or destroyed, they would be apportioned 50% of the claim each. Apportionment can also come into play in areas like real estate, workers' compensation, or the distribution of financial benefits.


Understanding Apportionment

Apportionments typically come into play in scenarios involving "other" or "double" insurance, where the same insured party takes out two or more insurance policies for the same interest, subject, and risks. The rules for apportionment are usually outlined in an apportionment or "other insurance" clause within the insurance policy.

These clauses are commonly found in both property and liability insurance policies. They define how an insurer's liability for a loss should be determined when a property is covered by multiple insurance policies. The distribution of insurance payouts is based on this provision and is proportional to the total coverage.

The specifics of these clauses can vary. Some policies may not provide coverage if other insurance is in place, while others may share the loss on a pro-rata basis. Some clauses might apply in cases of excess losses that aren't covered by the primary insurance policy. The purpose of apportionment clauses is to align with the principle of indemnity, ensuring that an insured party doesn't profit from a covered loss.


Apportionment of Cost

When certain expenses cannot be precisely assigned to a specific area of spending, these cost items are divided fairly among various spending categories. This is referred to as cost apportionment. It involves spreading out different cost items in proportions based on what makes sense for the particular expense or spending area.

Cost apportionment means distributing various overhead costs among departments in a logical manner. This distribution ensures that the expenses are divided among multiple spending categories based on the expected benefits each category receives