In property insurance, how is "total loss" determined?

In property insurance, a "total loss" occurs when the cost to repair the damaged property exceeds its current value or is deemed economically unfeasible. This assessment is fundamentally based on a comparison of repair costs to the property’s market value just before the damage occurred. If the expenses necessary to restore the property to its pre-loss condition are greater than what the property is worth, insurers typically classify it as a total loss.

By evaluating the costs involved in repairs against the property's value, insurance companies can make a clear decision regarding whether they will cover the loss as a total loss or if it is more appropriate to consider partial damages. Understanding this concept is key for policyholders to grasp how their claims will be handled in the event of significant damage to their property.