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Total Loss

In business, a loss signifies a state when the company is not able to generate sufficient revenue to cover its total expenses in line with the business operations. This means that the business expenses exceed its revenues or income, resulting to a loss, or negative income. Businesses tend to eliminate or avoid the occurrence of loss so as to provide greater economic value to their business by way of generating income. If circumstances dictate the inevitability of loss, businesses formulate strategies to at least reduce the loss amount.

However, in insurance, loss is defined as the damage or injury experienced by the insured property, such as those caused by accidents and fortuitous events.

The term total loss, on the other hand, refers to a total property or asset destruction, wherein what is left can be regarded of no value, and such property or asset cannot be fixed or repaired to its original condition. In this case, the insurance company pays the maximum amount covered for a certain policy.

An actual total loss is a loss that occurred upon the total destruction of the insured property which resulted to the property’s incapability to be fixed or repaired, or the one insured is permanently deprived of such restoration. The maximum defrayal possible is to be applied in this type of loss. Here, the insured is no longer obligated to furnish the abandonment notice, such as interest, surrender, and title of rights, in the property insured in exchange for the amount of compensation.

In addition, a constructive total loss indicates that the repair cost for a property exceeds its current value. It likewise occurs when the total settlement of a property claim is more than the property’s market value or replacement cost. A constructive total loss can cause the insurer to be possibly permitted by the insured to take up all the rights pertaining to the material good. Example of this is a severely damaged due to extreme collision and the cost to repair it may equal or even exceed its cost or the automobile’s insurance limit; or it could be a home totally destroyed by grave fire which requires a very huge amount for repair.

When negotiating a claim for a total loss, one must first familiarize the accurate definition of total loss. Next, the person must be aware that his/her estimate of the property’s fair value may disagree with that of the insurance company. Thus, it is important to agree with a fair settlement to steer clear of misinterpretations. A fair settlement means an amount right enough to purchase a new property, which is of quality and condition the same as the old one. In case the individual still haven’t found an ideal property for replacement within thirty-five (35) days, or has already discovered one with a cost more than the insurance coverage, he/she must ask for a written notice from the insurance company regarding the right thing to do in order for the claim to be reopened. And finally, he/she must hire a professional appraiser to determine the property’s correct present value. The value may take in past repair and maintenance costs of the property provided that these have supporting documents. An attorney or an independent authority is the ideal experts to seek help from.