Constructive Total Loss

Definition of 'Constructive Total Loss'

A constructive total loss is an insurance term where the cost of a repair for an item (e.g., house, boat or car) is more than the current value of that item. It can also refer to an insurance claim that is settled for the entire amount of a property on the basis that the cost to repair or recover the damaged property exceeds its replacement cost or market value.

Investopedia explains 'Constructive Total Loss'

Constructive total loss for a vehicle means that the damage is so extensive that repairs would equal or surpass the cost of the vehicle or its insurance limit. This type of loss is common in a head-on collision or total wreck.

For a home, it is common when a home is destroyed by a serious fire or other severe calamity. In cases where the property is damaged to the point where it is considered a constructive total loss, the insured could potentially allow the insurer to assume all rights over the material good.