Education

Understanding Insurance Series: Total Loss

12 July, 2023

Accidents and sudden events can significantly damage your property and belongings. In some cases, damage to your home, car or contents can be so severe that repairing them is impossible or uneconomical.

Let’s say the cost to repair your damaged home, car or contents is more than its value once repaired. We would declare it a “total loss”. You may have also heard this referred to as a “write-off”.

When you make a claim, we consider the value of your home, car or contents after repair, the extent of the damage, and how much it will cost to repair.

Motor

A simple example of ‘total economic loss’ is if your vehicle is flooded.

We will ask you for a photo of the car submerged in water (or have it checked by an assessor) and if the water reaches a certain level, it will automatically be written off. This is because the electrical damage is likely to be complex, expensive to replace, and cost more than the market value of the car after repair.

Home

An example of ‘total physical loss’ is a fire causing your house to burn down entirely.

Your house would have to be completely rebuilt, rather than repaired. The scale of damage is likely to be much bigger and more complex so we would need to use an assessor to look carefully at all the damage.

Contents

Floods often lead to total loss of all your contents.

If your house floods and all of your belongings are damaged beyond repair, we would declare total loss and cash settle the sum that you insured all of your contents for.

Your contents policy will also cover damage to individual items – so long as they are listed on your policy. Let’s say your laptop is covered for replacement, and your screen is badly damaged.

If the parts needed to repair your screen are unavailable, your laptop may be declared unrepairable.

If the parts needed to repair your laptop screen are available, the cost of that repair will be compared against the cost to replace your laptop, which brings us to an important distinction between replacement and market value.

Replacement value versus market value

Replacement policies cover your items for either the cost of repair or replacement of the item with a new one (either the same item or one with equivalent specifications).

Many of our replacement policies only apply to specified items and also include an age limit for certain electronics.

Market value policies cover your item for repair or the pre-damage value of the item, (whichever is the lesser). This takes into account its age and wear and tear.

Let’s say the repair cost for your screen exceeds the sum of your laptop’s pre damage value on the market, then we are likely to simply pay out that market value sum.

Similarly, if your iPhone 5 is insured for market value and it is lost or stolen, we won’t replace it with a new model iPhone. We would pay out an iPhone 5’s value on the market right now.

What’s involved when we settle a total loss?

  1. Initial assessment: When you lodge a claim, you are asked to provide details of the insured property, details of the incident, and relevant documentation including photographs and valuations. Your insurer will review this information and arrange an inspection if necessary.
  2. Inspection: Assessors may come to view the extent of the damage, take photographs, gather additional information, and consult with experts if needed.
  3. Valuation: If the property is determined to be a total loss, your insurer evaluates the pre-damage value by considering factors such as age, condition and agreed or market value before the accident. Other times, we will simply refer to your sum insured, so a valuation won’t be necessary.
  4. Settlement: Once the pre damage value is established, your insurer will calculate your settlement amount or see if a suitable replacement item is available.

Having your property or belongings classed as a total loss can be upsetting, but insurance is here to help you with the financial cost. Make sure you review your policy regularly.