What is Actual Loss in Insurance

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When you are trying to figure out how much money you will get in a claim understanding how claims payments will be calculated can help. Actual loss in insurance represents the actual costs or expenses incurred due to a claim and makes up the total payout the insurance company will make for the entire loss or claim, per the insurance policy wording. Actual loss may either refer to:

  • all costs incurred due to a claim that is paid by the insurance company as tallied in the final loss settlement,
  • your actual increased costs or financial losses due to the claim.

Actual Loss is the Total Paid For the Value of Actual Damage

Actual loss is a term that your insurance representative or claims adjuster may use when they refer to how much money has been paid out by the insurance company on behalf of the damage caused to your property by the insured perils in a claim. It does not necessarily represent the amount you received directly in your claim cheque. 

What Is Included in the Actual Loss Sustained

The actual loss is often only known once the claim has been fully assessed and is closing. It will include all amounts related to the claim including:

  • costs of repairs,
  • additional living expenses,
  • debris removal,
  • storage of items (if applicable),
  • costs for contractors or other specialists. 

This is where people sometimes become confused with the actual loss amount.

Example of Actual Loss in a Claim

Actual loss can be confusing. You may receive a claims settlement of $20,000 but this may not be the actual loss because that cheque may only cover the portion of the claim that you required compensation for, several other parties may have done work on your home and received compensation from the insurer directly. These amounts all fall into the total of the actual loss. An insured may receive $20,000, but after all amounts associated with the claim are tallied, the actual loss may be $63,300. See the example in the table below.

"Actual Loss" Costs Resulting From Expenses

Actual loss on expenses incurred due to your claim is the amount that your expense has increased from what would be the norm.

For example, if you now have to drive 20 extra miles to work every day while you live at a different address while waiting for your home to be rebuilt, then the actual loss is the amount of gas you are spending now, less the amount of gas you used to pay before the claim. Not the total amount you are spending while driving the 20 miles to work. The actual loss is the difference or increase in costs due to the claim.

Examples of Actual Loss in Insurance Claims

In a major claim, certain reserves may be set to cover costs of reconstruction, for example, however, the amount that will be paid in a claim will not exceed the actual loss value. If the projections were higher, its the actual cost that is paid and not the projections. Once the claim is complete, the actual loss is calculated and finalized in order to have the final claim payments.

The actual loss term is also used to distinguish the portion of the expense that is directly resulting from the claim, and therefore covered, vs. the total expenses or value being claimed by an individual in a loss. It will only cover what was actually lost, and not an entire cost if there is a difference. 

Example of How to Calculate the Actual Loss Sustained in a Sample Water Damage Claim

Description Projected Actual
Reconstruction of living room and hallway $42,000 $35,000
Replacement of Contents $15,000 $20,000
Additional Living Expenses* $400

$300* see example below

Debris Removal $1500
Storage of Furniture during loss

Cleaning of water damaged items $5500
Total Actual Loss $63,300

In the above case, the projected loss is $67,400, however, the Actual loss is $63,300

Where the Total Amounts in Actual Loss Sustained Come From

Using the example above, although the insured in the claim probably did not get paid the amounts for the cleaning of their contents, or the debris removal directly, and probably never even knew the costs involved, these amounts were paid out on their behalf and therefore must be included in the actual loss. This is the actual loss sustained in the claim. 

Example of Actual Loss in Additional Living Expenses of a Homeowner Policy

Mary and Joe lose some shingles off their roof during a windstorm, as a result, water starts coming into their home and they are unable to live in the dwelling while the repairs are being done in their living room and hallway. Their additional living expenses on their homeowner policy cover them for the displacement and additional costs of living in a hotel for a week while the work is being done at their home. When they submit their expenses for reimbursement, while the full cost of the hotel is covered, they are surprised to find out that only 75% of the costs they submitted are being reimbursed for the food they ate while dining out.

The insurance adjuster explains that their usual spend on food has to be taken into account as part of the expense calculation. For example, they usually spend 100 dollars a week on food, but because they are living in a hotel they end up spending 400 dollars, they will not get the full reimbursement of $400, they will get the actual loss. In this case, it would be $300 and not $400. 

The actual loss is the difference between the usual amount you spend, and the amount you have to spend due to the claim. This is the actual loss.

Example of Actual Loss Paid for Loss of Earnings

Finally, there is also a possibility of receiving compensation for actual loss due to the loss of earnings related to an insurance claim. This is one aspect of claims people do not always consider. Here's an example of actual loss for loss of earnings: The insurance company requires your presence in court in order to settle your claim. They are willing to pay your expenses to make the appearance including actual loss of earnings.

Your employer tells you not to worry about it and to take the day off paid. Although your time is valuable, if you suffer no actual loss of earnings, then you will not be paid.

If however your employer does not pay you for the day, and so you lose one day's worth of wages, then the actual loss is, in fact, a day of wages and your insurance policy may agree to pay you your actual loss.