Loss Settlement Amount

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.



comments powered by Disqus
Hot Definitions
  1. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  2. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  3. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  4. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  5. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  6. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
Trading Center