Actual Loss : Do You Know How Much You Will Get Paid In a Claim?

Actual Loss is when you figure out the actual cost of the claim
Actual Loss can be a confusing term, do you know how much you'll be paid in a claim?. Image Source / Getty Images

What Is Actual Loss?

Definition: Actual loss in insurance refers to the total costs directly or indirectly resulting from a claim. It represents the actual costs or expenses incurred due to the claim and make up the total payout the insurance company will make for the entire loss, per the policy wording.

Actual Loss in insurance may refer to:

1. all costs incurred due to a claim that are paid by the insurance company tallied in the final loss settlement

2. your actual increased costs or financial losses due to the claim

Actual Loss is the Total Compensation 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 insured perils in a claim, it does not necessarily represent the amount the insured him or herself received directly.  

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 becomes 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 example in the table below.

Actual Loss Costs Resulting From Expenses

Actual loss costs on expenses incurred during a 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

Example of Amount to be Paid to You Based on Actual Loss:

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 pad 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

DescriptionProjectedActual  
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

 

$1000
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 Do 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 the 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 are covered, they are surprised to find out that only 75% of the costs 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 in the expenses. 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. The actual loss is the difference between the usual amount they spend, and the amount they had to spend in addition to that due to the claim. This is the actual loss. In this case it would be $300 and not $400. 

Example of Actual Loss Paid for Loss of Earnings

Finally, there is also a possibility of receiving compensation for actual loss due to 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 days worth of wages, then the actual loss is in fact a day of wages and your insurance policy agrees to pay you your actual loss.