DEFINITION of 'Ultimate Net Loss'

A party's total financial obligation when an insured event occurs. The insured's ultimate net loss from costs such as property damage, medical expenses and legal fees will be offset by the portion of the loss that is paid by the insurance company (usually the amount of the claim that exceeds the insured's deductible, up to the policy maximum). Thus, the insured's loss will often be limited to the policy deductible unless the total loss exceeds the policy maximum.


An insurance company's ultimate net loss from a claim may be offset by the salvage value of any recoverable items, awards from successful claims against third parties, money from reinsurance and the policyholder's deductible and policy maximum. Ultimate net loss can be a generic term that refers to the total amount of any loss, but in finance it is most commonly used to refer to an insurance company's total loss from a policyholder's claim.

BREAKING DOWN 'Ultimate Net Loss'

Insurance companies can protect themselves against large ultimate net losses by sharing policy risk with reinsurers. When an insurer shares a portion of the premiums it collects with a reinsurance company, it gains protection against a portion of its claims losses. For example, an insurance company might receive $30,000 in annual premiums for a $10 million policy. To protect itself against the threat of a $10 million loss, the insurance company might cede $15,000 of the annual premium to a reinsurer, who would agree to cover $5 million of the potential loss.

RELATED TERMS
  1. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  2. Transfer Of Risk

    The underlying tenet behind insurance transactions. The purpose ...
  3. Total Insurable Value

    Total insurable value is the value of property, inventory, equipment, ...
  4. Loss Portfolio Transfer

    A reinsurance treaty in which an insurer cedes policies that ...
  5. Loss Cost

    Loss cost is the amount of money that an insurer has to pay in ...
  6. Experience Refund

    The portion of an insurance company’s premiums or profits that ...
Related Articles
  1. Insurance

    Facultative vs. Treaty Reinsurance: Differences and Examples

    Reinsurance companies offer insurance to other insurers in case the traditional insurer does not have enough money to pay claims against its written policies.
  2. Insurance

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  3. Investing

    Elements of Insurable Risks: A Quick Guide

    Explore the elements of insurable risk: due to chance, measurable and definite, predictability, noncatastrophic, random selection and large loss exposure.
  4. Insurance

    Bundle Your Insurance For Big Savings

    Bundling your insurance can save you money and time. Read on to see how get the most out of multiline insurance discounts.
  5. 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.
  6. Insurance

    12 Insurance Questions for High Net Worth Families

    High net worth families should ask themselves these 12 questions regarding comprehensive insurance.
  7. Insurance

    Homeowner's Insurance Guide: A Beginner's Overview

    Everything new homeowners need to know about homeowner's insurance to protect their residence.
  8. Insurance

    How to Protect Your Income No Matter What

    What does it mean to insure your income? Here are a variety of ways to do it and some insights into when it might make sense to invest in income insurance.
RELATED FAQS
  1. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  2. What caused the European / Eurozone debt crisis?

    Understand how insurance companies price insurance premiums, and learn the importance of data and statistics in the insurance ... Read Answer >>
  3. What risks do I face when investing in the insurance sector?

    Read about the unique challenges faced by insurers, and learn how those challenges manifest themselves as risks for equity ... Read Answer >>
  4. What is the main business model for insurance companies?

    Read about the most important components of an insurance company business model, such as risk pricing, investing and claims ... Read Answer >>
  5. Can my insurance company refuse me coverage?

    Insurance isn't always as straightforward as other products. Insurers can deny coverage in many different instances:Non-Renewal ... Read Answer >>
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Risk Tolerance

    The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important ...
  3. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
  4. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  5. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
  6. Stop Order

    A stop order is an order to buy or sell a security when its price increases past a particular point in order to limit losses ...
Trading Center