Actual and Consequential Losses

25/07/2021 0 By indiafreenotes

Actual Loss

Actual loss in insurance represents the actual costs or expenses incurred due to a claim. It makes up the insurance company’s total payout for the entire loss or claim, per the insurance policy wording.

Actual total loss is a loss that occurs when an insured property is destroyed or damaged to such an extent that it can be neither recovered nor repaired for further use. Often, an actual total loss triggers the maximum settlement possible according to the terms of the insurance policy.

Actual loss refers to how much money has been paid out by the insurance company on behalf of the damage caused to your property by the insured perils in a claim. It does not necessarily represent the amount you receive directly in your claim check.

The term “actual loss” is also used to distinguish the portion of the expense that is directly resulting from a claim. That amount will be covered, rather than the total expenses or value claimed during the loss.

The actual loss is often only known once the claim has been fully assessed and is closing. It will include all amounts related to the claim, including:

  • Costs for contractors or other specialists
  • Additional living expenses
  • Costs of repairs
  • Debris removal
  • Storage of items (if applicable)

With respect to actual total loss, s 57(1) of the Marine Insurance Act 1906 applies to any subject matter insured within a policy of marine insurance, and this may include, amongst others, ship, goods, freight, profits and commissions, wages and disbursements when it states:

Where the subject matter insured is destroyed, or so damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably deprived thereof, there is an actual total loss.

Consequential Losses

A consequential loss is an indirect adverse impact caused by damage to business property or equipment. A business owner may purchase insurance to cover any damage to property and equipment, and may also obtain coverage for secondary losses. A consequential loss policy or clause will compensate the owner for this lost business income. 

This type of insurance is also called business interruption or business income insurance.

Any interruption in business operations caused by fire or other special perils, resulting in a financial loss of various kinds is called consequential loss. A consequential loss insurance policy for fire or other special perils financially compensates the owner for the lost business income due to fire.

An incident of fire has the potential to not only damage the goods and machinery, but also impact the projects in pipeline and in hand. This can cause business interruption and financial loss. An insurance plan like Standard Fire and Special Perils Policy covers fire and allied perils but not financial loss due to business interruption. This is where Consequential Loss Insurance comes in picture.


  • In case of misfortune due to fire or special perils, resulting in loss in income or revenue or increased fixed cost covered under the policy, a policyholder must immediately call the toll-free number of the insurance company and register the case.
  • At the end, insurance company analyses the Final Survey Report (FSR) submitted by the Surveyor, and compensates the organization for the consequential loss subject to the terms and conditions.
  • Insurance company will consider Annual gross profit, indemnity period selected and extensions selected while calculating the premium for consequential loss insurance.
  • Licensed surveyor is appointed to survey the case and the documents and for proper evaluation of loss to the organisation.

The insurance policy provides coverage against various kinds of business loss:

  • Layoffs and retrenchment compensation
  • Loss of gross profit due to a decrease in turnover
  • Auditor’s fees
  • Spoilage consequential loss