What Is Actual Loss in Insurance

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When you are trying to figure out how much money you will get in an insurance claim, understanding the calculation for claims payments can help. Actual loss in insurance represents the actual costs or expenses incurred due to a claim. It makes up the insurance company's total payout for the entire loss or claim, per the insurance policy wording.

Actual loss may refer to all costs incurred due to a claim paid by the insurance company as tallied in the final loss settlement. It can also be 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 referring 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. 

These listed items are where people sometimes become confused with the actual loss amount.

Actual loss can be confusing. You may receive a claims settlement of $20,000, but this may not be the actual loss. That check may only cover the portion of the claim for which you required compensation. Several parties may have done work on your home and directly received compensation from the insurer. These amounts all fall into the total of the actual loss. An insured may receive $20,000, but after all of the amounts associated with the claim are tallied, the actual loss might 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 reconstruction costs, 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 to have the final claim payments.

The term "actual loss" is also used to distinguish the portion of the expense that is directly resulting from a claim. It is therefore covered, versus the total expenses or value 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, the insured claim probably did not directly receive amounts for cleaning their contents or debris removal. Perhaps, they never even knew the costs involved for those services. These amounts were paid out on their behalf and therefore, must be included in the actual loss. This total 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 that only 75% of the costs they submitted are reimbursed for the food they ate while dining out.

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

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