What is Constructive Total Loss (Non-Marine Insurance)?
Constructive Total Loss (Non-Marine Insurance) is A constructive total loss does not require the subject matter of the policy to be actually lost, destroyed or damaged beyond repair, but to be partially damaged and to such an extent that it would cost more than the Sum Insured to repair. This often happens in the case of motor vehicles, but other examples include buildings that are substantially damaged by fire or storm. It is not unusual for the remaining structure to be demolished and the entire building to be rebuilt, as this is the more economically viable option. In some circumstances, a constructive total loss can occur even in the absence of damage to the insured item. Using the motor vehicle policy as an example, a stolen vehicle may be located undamaged in a location where the costs of recovery and returning it to the client are prohibitive. In this case, the insurer will pay out the Sum Insured to the client, treating the vehicle as a total loss. As with an actual total loss, once the claim has been settled, the policy is said to be exhausted.