Understanding total loss

‘Total loss’ is a commonly used term in insurance. If your insurer tells you that your property is a total loss, it will influence how your claim is processed and settled, so it’s useful to understand what the term means. We’re here to help break it down for you.

What is a total loss?

You may have heard the words "totalled" or "written off" being used to describe a total loss. In short, it means that it's not economical to repair your property. Let's have a look at what that means for your car, home and contents.

• Car: your car may be a total loss if your insurer decides it's unsafe to repair it, the cost of repairing the car is more than the value it is insured for, or the car has been stolen and has not been found.

• Home: a home may be a total loss if the cost to repair the home is more than the cost required to rebuild it.

• Contents: contents are usually a total loss if the cost to repair or replace all the items damaged or stolen in one event is higher than the sum insured that you've chosen.

If you experience a total loss, your insurance provider may replace the insured item(s) with the nearest equivalent item(s) or a cash settlement. For home insurance, the way your home insurance claim will be settled will depend on how the damage occurred, the nature of the event that caused the damage, and the extent of the damage. For more information, read our blog on home insurance.

In a total loss, we may make several deductions to the settlement amount, such as:

• the excess

• any remaining premium or unpaid instalments

• any outstanding on-road costs for a motor vehicle

An example of a total loss

Isla accidentally rear-ended the car in front of her at a traffic light, and her car was badly damaged. She called her insurance provider (AA Insurance) to lodge a claim. As her car couldn’t be driven, we towed it to our Customer Service Centre for assessment. The damage was significant and Isla was told her car was a total loss. When she renewed her policy a few months earlier, Isla had insured her car at the agreed value of $10,000 so, after her claim was processed, her settlement amount was:

• + her agreed value of $10,000

• - her excess: $400

• - any remaining premium: $0

• - any outstanding on-road costs (such as unpaid vehicle registration): $0

giving her a total of $9,600.

Tui’s house got broken into when she was away. The burglars got into the house through the window and damaged the windowpane and its frame. They wrecked some of her furniture and stole her electronics, jewellery and a few clothes and shoes. The damage to her house was repairable, but the affected contents came to a similar value to her sum insured, so her contents claim was treated as a total loss. Once she paid her excess and her outstanding premium, her sum insured was paid out to her in two ways: where possible, the items were replaced with the nearest available equivalent, and, for the others, Tui was given the replacement value in cash and store credits. As the claim was settled as a total loss, the policy was used in full and cancelled so Tui set up a new policy straight away to ensure her contents was covered.

Key takeaways

Your insurer may tell you your property is a total loss if it cannot be safely repaired or if the cost of repairing it is more than the amount it is insured for. With AA Insurance, when you first take out insurance with us and on your annual renewal, you will agree the amount your property is insured for, known as your vehicle insurance’s agreed value or your home and contents insurance sum insured. It's important that you insure your property for an amount equal to the cost of buying a car with the same specifications, rebuilding your home or replacing the contents of your home. Other insurers may have different ways of settling a total loss. Read the wording of your policy and your policy schedule carefully so that you understand the terms of your cover and its limits.