Definition of Loss in Insurance

The primary purpose of an auto or home insurance policy is to protect the insureds against a loss. In insurance terms, a loss is any injury or damage that the insured suffers because of a covered accident or misfortune. It generally refers to a reduction in a property's value or to harm affecting a person, such as an injury after a car accident.

Property losses are partial or total. A partial loss is one that does not completely destroy the property and the property can be repaired without exceeding the policy limits or the property value. A total loss occurs when the cost of repairing the property is more than the property's value. Partial losses are more common than total losses.

Your insurance policy defines what losses the policy covers. If your property is damaged by a loss that is not covered, you receive no compensation. For example, if your car is damaged in a hail storm and you do not have comprehensive coverage as part of your auto insurance policy, the insurance company will not pay for your car repairs.

If you have a substantial unreimbursed insurance loss, you may be able to deduct that loss from your income tax. You can generally deduct the loss if it exceeds 10 percent of your adjusted gross income, minus $100. You should be sure you can document the deduction with receipts, insurance statements and a copy of the police report if one was filed.

When you file an insurance claim after a loss, your insurance company pays the amount of the loss up to the policy limit minus your deductible. The deductible is the amount you agree to pay toward any claim. The higher you set your deductible, the lower your premium will be.

Preventing losses helps to keep your insurance costs down because the fewer claims you file, the lower your premiums will be. Installing anti-theft and safety devices in your home and auto are one way to prevent losses. You can also prevent losses by regularly completing routine maintenance tasks.