Apportionment

Definition: An apportionment occurs when someone applies for insurance on a given piece of property, and the insurance company divides the claim evenly among all parties insured on the property. If one party cannot have his claim paid, he may be eligible to receive an apportionment from his insurance provider. Apportionments are often helpful to parties who have incurred losses and extreme loss reserves because they allow each party to use some of their reserves to pay off another party’s outstanding claim.

Apportionment exercises are crucial for efficient economic systems since they allow planners to allocate resources without measuring every individual consumer’s desire, interest, and opportunity cost (except in special cases).

Both the property and liability insurance policies must be periodically apportioned if a change in circumstances affects the insured party. Crucial points to note when determining whether to include an apportionment clause include the amount of loss and whether the loss can be separately recoverable from the insured party later. An apportionment clause is commonly found in both personal liability and property insurance policies. This clause essentially gives the insurer right to set off part or all of your claim against them against the policy if the claim relates to damage or loss suffered due to an accident or force majeure event (i.e., fire, flood, etc.).

Assured Liability apportionment clauses intend to comply with the principle of indemnity.  The principle of indemnity says that an insured should not profit from an insured loss. This is often important because insurers will often buy insurance against losses that may never happen. But insurance can sometimes be bought on behalf of third-party providers, and these providers may be liable for your losses even if they weren’t at fault for the specific incident you’re claiming against them.

In worker’s compensation insurance, apportionment is the method of determining the percentage each worker and each employer responsible for paying for the recovery of an injury or illness resulting from one of their jobs.  

Apportionment is a necessary aspect of selling real estate. If you are buying property and want to ensure you get what you paid for, there are often questions about dividing up your payments. The apportionment process will determine who pays what to whom for any repairs, maintenance, or property cleaning needed after the sale. Many real estate agents will use their knowledge of the local property market and community desires when making apportionment decisions.

When dealing with real estate, property taxes can be apportioned. This means that after you pay your upfront expenses (directly or indirectly) for the property and before you sell it, your hosting provider will give you a check for the balance remaining at the end of the year. Also, if you borrow against your down payment for the downpayment, as many first-time buyers often do, the lender will apportion that amount against whatever income you earn during the year.

In the consumer finance industry, apportionment is used to allocate debt payments among parties who owe a debt to reduce or eliminate their debt burden. When a buyer and seller agree on how much the buyer will pay for an item, and the seller provides an estimate of how much he or she will have to spend on repairs, it is considered apportionment. In most cases, the seller’s estimate is considered accurate; however, there can be discrepancies between the seller’s final figures and the actual costs when the time comes for payment.

The process of apportionment is complex, and the outcome is not always predictable. The outcome can be smaller than you might expect or larger than you bargained for. If your loss is apportioned amongst multiple insurance companies, you must understand how each company will value your property. Apportionment may occur due to a disagreement over a single insured asset or result from multiple insured assets amalgamating into one parcel and then being assigned to a single insurer.