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What is Total Loss?

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Kevely Diaz

Answered On Sep 22, 2023

· Answered On Sep 22, 2023

Total Loss is an insurance term that refers to a situation where the cost of repairing a damaged property, such as a car or a house, exceeds its actual cash value (ACV) or is close to its insured value. In such cases, the insurance company considers the property a “total loss” or “insurance write-off”.

This term is most commonly used in auto insurance. For instance, if a car gets severely damaged in an accident, the insurance company will calculate the cost of repairs. If the repair cost is higher than the car’s current market value or if it is not safe to repair, the insurance company will declare it a total loss.

In such scenarios, the insurance company typically compensates the policyholder with a payout or loss settlement equivalent to the actual cash value of the property before the damage occurred, minus any applicable deductible. This means the policyholder will receive an amount allowing them to replace the lost property with a similar one in the current market.

It’s important to note that the criteria for declaring a total loss can vary from one insurance company to another and may also depend on state regulations. Some companies may declare a total loss if the cost of repairs exceeds a certain percentage (for example, 80%) of the vehicle’s actual cash value.

In the case of property insurance, a home could be considered a total loss if it is destroyed by a covered peril such as a fire or a natural disaster to the extent that it is uninhabitable and beyond repair.