What Is Actual Loss in Insurance?

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Actual loss in insurance represents the actual costs or expenses incurred due to a claim. It makes up the insurance company's total payout for the entire loss or claim, per the insurance policy's wording.

Key Takeaways

  • Actual loss refers to how much money would be paid out by the insurance company on behalf of the damage caused to your property by the insured perils in a claim.
  • Actual loss does not necessarily represent the amount you would receive directly in your claim check.
  • Even if services are paid directly by your insurer to a service provider, these costs are included in the total actual loss.
  • Actual loss on expenses incurred is the amount that your expenses have increased as a result of your claim, above what you would normally be spending.

Definition and Examples of Actual Loss in Insurance

Actual loss refers to how much money has been paid out by the insurance company on behalf of the damage caused to your property by the insured perils in a claim. It does not necessarily represent the amount you would receive directly in your claim check. 

The term "actual loss" is also used to distinguish the portion of the expense that is directly resulting from a claim. That amount will be covered rather than the total expenses or value claimed during the loss.

For example, suppose a house floods due to a burst pipe. Expenses may include an emergency plumber, repairs to any damaged property, and in extreme events possibly even outside living accommodations while the home is not habitable. The actual loss includes all costs that come about as a result of the event. However, the terms of the insurance policy will dictate how much the homeowner will be reimbursed in the claim check.

How Does Actual Loss in Insurance Work?

Actual loss can be confusing. You may receive a claims settlement of $20,000, but this might not be the actual loss. That check may only cover the portion of the claim for which you required compensation. Several parties may have done work on your home and received compensation directly from your insurance company, meaning that you didn't have to pay for it.

These amounts all fall into the total of the actual loss. The insured person might receive $20,000, but after all of the amounts associated with the claim are tallied, the actual loss might be $63,300.

The actual loss is often only known once the claim has been fully assessed and is closing. It will include all amounts related to the claim, including:

  • Costs of repairs
  • Additional living expenses
  • Debris removal
  • Storage of items (if applicable)
  • Costs for contractors or other specialists

These listed items are where people sometimes become confused with the actual loss amount.

Calculating the Actual Loss in a Sample Water Damage Claim

Description Projected Actual
Reconstruction of Living Room and Hallway $43,000 $35,000
Replacement of Contents $15,000 $20,000
Additional Living Expenses* $400
$300* see example below
Debris Removal $1,000 $1,500
Storage of Furniture During Loss
Cleaning of Water-Damaged Items $7,000 $5,500
Total Projected vs. Actual Loss $67,400 $63,300

In the above case, the projected loss is $67,400. However, the actual loss is $63,300.


In a major claim, certain reserves may be set to cover reconstruction costs, for example. However, the amount that will be paid in a claim will not exceed the actual loss value. If the projections were higher, it is the actual cost that will be paid—not the projected cost.

Using the example above, the homeowners probably did not receive a direct payout for the costs of cleaning their contents or debris removal. Perhaps they never even knew the costs involved for those services because the service providers were paid directly by the insurance company. Although those amounts were paid out on their behalf, they still must be included in the actual loss calculation. This total is the actual loss sustained in the claim. 

Actual Loss Costs on Expenses Incurred

Actual loss on expenses incurred is the amount that your expenses have increased from what you would normally be spending, as a result of your claim.

For example, perhaps you have to drive 20 extra miles to work every day while you live at a different address as you wait for your home to be rebuilt. The actual loss amount would include the cost of what you are spending on gas now, minus the cost of what you would normally be paying before the claim. It's not simply the total amount you are spending while driving the 20 miles to work. The actual loss is the difference or increase in costs due to the claim.

What Actual Loss Means for Homeowners

Suppose homeowners Mary and Joe lose some shingles off their roof during a windstorm. As a result, water starts coming into their home, and they are unable to live there while the repairs are being done in their living room and hallway. Their additional living expenses on their homeowner policy cover them for the displacement and additional costs of living in a hotel for a week while the work is being done at their home.

When they submit their expenses for reimbursement—while the full cost of the hotel is covered—they are surprised to find that not all of their food costs will be reimbursed.

The insurance adjuster explains that their usual spending on food has to be taken into account as part of the expense calculation. For example, they usually spend $100 a week on food. However, because they are living in a hotel, they end up spending $400. While they will not get the full reimbursement of $400, they will get the actual loss, which is only $300 ($400 - $100 = $300).


The actual loss is the difference between the usual amount you spend and the amount you have to spend due to the claim.

Example of Actual Loss Paid for Lost Earnings

There is also the possibility of receiving compensation for actual loss due to the loss of earnings related to an insurance claim. Lost earnings are one aspect of claims that people do not always consider.

Here's an example of actual loss for loss of earnings: The insurance company requires your presence in court to settle your claim. It is willing to pay your expenses to make the appearance, including actual loss of earnings. Your employer tells you not to worry about it and to take a paid day off. Although your time is valuable, if you suffer no actual loss of earnings, you will not be paid by your insurance company.

However, if your employer does not pay you for the day, meaning that you lose one day's worth of wages, then the actual loss is, in fact, a day of wages. In that case, your insurance policy may agree to pay you your actual loss.

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