Total loss

For accounting or tax depreciation, see Write off. For the album by How To Dress Well, see Total Loss (album).
"Totaled" redirects here. For the video game, see Totaled!.
This building will be a "total loss" if its insurer determines that the cost of repairing it exceeds that of its insured value.
Even though only partially sunk in shallow water, in 2012 the relatively new cruise liner Costa Concordia was declared a "constructive total loss" due to escalating environmental and salvage clean-up costs.

In insurance, a total loss or write-off is a judgment, by the insurer, that the lost value or repair cost of a damaged property exceeds the value of its policy, resulting in what it concludes is a "total loss" or "constructive total loss"[1][2] A constructive total loss factors other incidental expenses beyond repair, such as salvage. Policies covering homes, vehicles and other non-investment assets subject to depreciation typically pay the insured only a fraction of the cost of replacing the property, meaning they could become "total losses" even though some value remains.[3][4] About one in seven car accident claims results in a "total".[5]

Auto insurance

Main article: Auto insurance

Except in extreme circumstances, a vehicle that has been written off will not be completely worthless. This is because such a vehicle will usually still contain salvageable used parts, or at a bare minimum will still have value as scrap metal. All that is required for a vehicle to be a write-off is that it would cost more to return to marketable condition than the market value it would then have. So a vehicle of low value may even be written off when fully roadworthy, for example due to damage to paintwork or upholstery.

A severely damaged automobile with repair costs greatly exceeding its value.

In many jurisdictions a vehicle designated as a total loss is sold by insurance companies to general public, auto dealers, auto brokers, or auto wreckers. The metrics insurance companies use to make the decision include the cost of the repairs needed plus the value of the remaining parts, added to the cost of reimbursing the driver for a rental while the car in question is repaired. If this figure exceeds the value of the car after it is repaired, the vehicle is deemed a total loss. In most jurisdictions, a decision by an insurer to write off a vehicle results in vehicle title branding, marking the car as "salvage" or (if repaired and reinspected under subsequent ownership) "rebuilt". If the vehicle is not severely damaged, however, it can be restored to its original condition. After a government approved inspection, the vehicle can be put back on the road. The inspection process may not attempt to assess the quality of the repairs.[6] This function will be relegated to a professional mechanic or inspector. However, if the vehicle is severely damaged as per standards set by state or provincial governments, the vehicle is dismantled by an auto wrecker and is sold as parts or scrapped.

Once a vehicle has been written off and repaired the vehicle may still lose value. Diminished value is the reduction in a vehicle's market value occurring after a vehicle is wrecked and repaired, otherwise called accelerated depreciation. To collect diminished value after a car accident, insurance companies usually ask for a diminished value report.

In Canada, this is more commonly called accelerated depreciation; how a person goes about reclaiming those losses in either country is a different process. In some US states, insurance companies acknowledge diminished value and provide this coverage direct to their consumers. In Canada, in order to recuperate the lost value after an accident, a person needs to retain legal counsel and order an acceleration depreciation report on their car for the court's use.

Shipping

Main article: Marine insurance

A particular policy may cover the ship only, the cargo only, various other aspects of the voyage or a combination of these. The term "total loss" can refer to any of these, but most commonly involves a loss of the hull. Total losses are divided into two classes: actual total loss (ATL) and constructive total loss (CTL).[7]

An actual total loss of a vessel occurs when repair is physically or legally impossible. A total loss may be presumed when a ship disappears and no news is received within a reasonable time.[8] Some legal authorities do not consider it an actual total loss if repair costs are merely prohibitive,[9] while others include cases where the cost of repair would exceed the cost of the vessel. In any case, the term "legally impossible" covers instances where reconstruction would be so extensive that the resulting craft would be legally considered a new vessel.[7]

A constructive total loss is a situation where the cost of repairs plus the cost of salvage equal or exceed the value of the vessel. It also covers cases where the vessel has been abandoned in the reasonable belief that a total loss is inevitable.[10] The calculation can be affected by environmental cleanup costs.[11]

See also

References

  1. ↑ "Business Dictionary: "Total Loss"". Dictionary. BusinessDictionary.com. Retrieved January 6, 2013.
  2. ↑ "Glossary of Insurance Terms". Dictionary. Trafalgar International, Ltd. Retrieved January 6, 2013.
  3. ↑ "What Is a Homeowners Insurance Depreciation?". TheNest.com. Retrieved January 6, 2013.
  4. ↑ "Property & Casualty Insurance: total loss house fire". AllExperts.com. Retrieved January 6, 2013.
  5. ↑ Russ Heaps. "Crash Course for Coping With a Totaled Car". AutoTrader.com. Retrieved January 6, 2013.
  6. ↑ http://www.wovi.com.au/FAQ.aspx
  7. 1 2 Wilhelmsen, Trine-Lise (Professor). "Marine insurance, the individual type" (PDF). Scandinavian Institute of Maritime Law. Retrieved 2016-04-04.
  8. ↑ Duhame, Lloyd. "Actual Total Loss". Duhame.org Legal Dictionary. Retrieved 2016-04-04.
  9. ↑ "Venetico Marine SA v International General Insurance Company Ltd and others". 27 February 2014. Retrieved 2016-04-04.
  10. ↑ Duhame, Lloyd. "Constructive Total Loss". Duhame.org Legal Dictionary. Retrieved 2016-04-04.
  11. ↑ "Costa Concordia insured loss could reach $2 billion". Artemis.bm Catastrophe bonds, insurance linked securities, reinsurance capital & investment, risk transfer intelligence. Retrieved 2016-04-04.

External links

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