Total Loss

A total loss occurs when your insured property or vehicle is so badly damaged that it cannot be economically repaired, or has been stolen and not recovered. The insurer pays out the insured value or market value instead of repair costs.

You might hear it called a “write-off” when it comes to vehicles. The idea is the same. It costs more to fix than it’s worth.

Why It Matters

• The way your insurer calculates a total loss payout depends on whether your policy is agreed value, market value, or sum insured.
• If you’re underinsured, a total loss payout might not be enough to replace what you’ve lost.
• Understanding how total loss works helps you set the right cover levels when you take out or renew your policy.
• The insurer takes ownership of the damaged property or vehicle after paying out (this is called salvage).

How It’s Determined

An insurer will typically declare a total loss when:

• The cost of repairs exceeds a certain percentage of the vehicle or property’s value (often around 60-80% for motor vehicles).
• The item is stolen and not recovered within a set time frame.
• The damage is so severe that repair is not practical or safe.

A loss adjuster may be involved in assessing the damage and confirming the total loss.

Simple Examples

• Your work vehicle is involved in a major collision. Repairs would cost $25,000 but the vehicle’s market value is $18,000. The insurer declares it a total loss and pays out $18,000 (minus your excess).
• A fire destroys your commercial kitchen. The cost to rebuild and replace equipment exceeds your sum insured. The insurer pays up to the sum insured limit.
• Your vehicle is stolen and not recovered within 28 days. The insurer treats it as a total loss and pays out based on your policy terms.

Common Mistakes or Misunderstandings

• Thinking you always get a brand-new replacement. Unless your policy specifically includes new-for-old cover, payouts are typically based on market value or the agreed/sum insured amount.
• Not understanding market value vs agreed value. Market value is what the vehicle or asset is worth at the time of loss. Agreed value is a set amount you and the insurer agreed to when the policy was taken out.
• Forgetting about the excess. Your excess is still deducted from the total loss payout.
• Not keeping your sum insured up to date. If your property has increased in value but your sum insured hasn’t, you could face underinsurance at total loss.

When to Speak to a Broker

If you want to make sure your vehicle or property is insured for the right amount, or you need help understanding the difference between market value and agreed value, a broker can help you get the numbers right.

Need help?

If you want to review your cover levels or make sure you’re properly protected in a total loss scenario, reach out to Tank Insurance and we’ll check it for you.

Related Terms

• Principle of Indemnity - A total loss payout aims to put you back in the financial position you were in before the loss, not to profit from it.
• Underinsurance - Being underinsured at the time of a total loss means the payout won’t fully cover your replacement costs.
• Loss Adjuster - A loss adjuster may assess the damage and confirm whether a total loss has occurred.