Loss Settlement Amount

AAA

DEFINITION of 'Loss Settlement Amount'

A term used to denote the amount of a homeowner's insurance settlement. Homeowners are typically required to carry insurance that will cover at least 80% of the replacement value of their house. The loss settlement amount, the funds that the insurance company pays out to the homeowner, may be less than the amount of full coverage if the 80% coinsurance requirement is not met.

INVESTOPEDIA EXPLAINS 'Loss Settlement Amount'

The loss settlement formula works like this: If a homeowner with a $400,000 house carries only $300,000 of coverage, and sustains a loss of $150,000 from a fire, then less than the total amount of $150,000 will be reimbursed. The amount to be paid is computed by dividing the amount of insurance carried by the 80% requirement. This comes to $300,000 / $320,000 (80% of $400,000). The quotient is 0.94. Multiply this amount by the loss of $150,000 to get $140,625. This is the amount that will be reimbursed.

RELATED TERMS
  1. Insurance Claim

    A formal request to an insurance company asking for a payment ...
  2. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty ...
  3. Premium

    1. The total cost of an option. 2. The difference between the ...
  4. Deductible

    1. The amount you have to pay out-of-pocket for expenses before ...
  5. Co-Insurance

    A co-sharing agreement between the insured and the insurer under ...
  6. Commercial Package Policy (CPP)

    An insurance policy that combines coverage for multiple perils, ...
Related Articles
  1. Home & Auto

    The Beginner's Guide To Homeowners' Insurance

    Discover everything new homeowners need to know before they sign on the dotted line.
  2. Budgeting

    7 Smart Steps Every New Homeowner Should Take

    Don't let the excitement of owning your own home lead you to make bad financial decisions.
  3. Home & Auto

    5 Steps To Scoring A Mortgage

    Find out what you can do to polish up some of the common flaws that put off lenders.
  4. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  5. Insurance

    Which States Have the Cheapest Home Insurance?

    You can't choose where you live by its insurance rates. But if you did, these are the states to pick.
  6. Insurance

    How to Use a Waiver of Subrogation

    A waiver of subrogation means that a party to a contract waives the right to allow someone (usually an insurance company) to sue the other party to the contract in case of a loss.
  7. Insurance

    Insurance Myths Involve Houses, Cars & Big Crashes

    Any confusion over what to buy or how to use a product can end up being costly, but when it comes to insurance, misunderstandings can cost thousands.
  8. Investing Basics

    Rental Property: Getting Rich Means Taking It Slowly

    I have two second cousins who serve in the military. We don't always talk much, though. The age gap can be a roadblock and those boys are always traveling
  9. Insurance

    How the Affordable Care Act Changed Insurance

    6 Ways Obamacare Impacts the Health Insurance Marketplace
  10. Insurance

    Why You Don’t Need Mortgage Protection Life Insurance

    Mortgage protection life insurance sounds great in concept - a guarantee that your mortgage will be paid off if you die unexpectedly. But take a hard look at what you get before choosing it.

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center