Reviewed by Stefan Tirschler
Updated May 30, 2023
to·tal loss | ˈtō-tᵊl ˈlȯs
Definition: The complete destruction of insured property, such that repair costs would exceed the limit of insurance coverage.
The fire caused a total loss to Joe and Becky’s house.
A total loss in home insurance is when the insured home is damaged so badly that it can’t be repaired. In the case of a house, it means the house has to be rebuilt. Total loss means the complete destruction of the insured property, with nothing left of value.
People often say something was “totaled” when it suffered a total loss. It’s a term more frequently heard in the auto insurance world, but homes can suffer total losses, too.
The line between “totally destroyed” and “kind of destroyed” can be a little ambiguous, which isn’t helpful when you’re talking about contracts of insurance.
Instead, total loss of a house is defined more specifically: a total loss is when the cost to repair damage to the home is greater than the value the home is insured for.
There are two kinds of total loss: actual total loss, and constructive total loss.
Actual total loss to a home means it’s completely destroyed, and nothing of value or use remains.
Following a wildfire that swept through the town, Ross’ house was burned to the ground. He had no choice but to have the debris cleared and build a completely new house. This was an actual total loss event.
Constructive total loss means the house is not totally destroyed, but the repair costs would still exceed the home’s insured value.
A severe flood in Agnes’ neighbourhood left the ground floor and basement of her home completely destroyed. The water damage was so bad that the whole foundation and ground floor needed to be torn out and built anew. Even though the second floor of her house was unharmed, the repairs were so extensive that the cost exceeded her home’s insured value. This was a constructive total loss event.
Either type ends up the same for the homeowner: the insurance company will pay the full insured value of the home (as long as the cause of the destruction was something covered by the policy).
If the homeowner’s insurance policy includes guaranteed replacement cost, the home insurance company will pay the full cost of rebuilding the house, even if it’s more than the home’s insured value. Otherwise, the homeowner will be responsible for covering any shortfall between their insurance coverage and the actual cost of rebuilding their home.
In insurance, a total loss is where the insured property is damaged so severely that the cost to repair it is greater than the value it’s insured for.
Total losses can be either actual or constructive.
When a home suffers a total loss, the insurance company covering it will pay to rebuild it up to the full insured value, and beyond that value if the homeowner had guaranteed building replacement cost coverage.
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About the expert: Stefan Tirschler
Stefan is responsible for underwriting leadership, market expansion, and product research and development for Square One's operations. Stefan has earned his Fellow Chartered Insurance Professional designation, and maintains a level 2 general insurance license in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Stefan is also an Education Committee member and CIP/GIE instructor for the Insurance Institute of Canada.
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