A common question I receive when discussing with clients is, “what is recoverable depreciation?” Recoverable depreciation is the difference between actual cash value and replacement cost. A recoverable depreciation clause in an insurance policy accounts for the deterioration in the value of insured possessions and gives the homeowner the ability to claim that difference. The value of a home and ordinary household possessions lose value or depreciate over time. The amount of depreciation varies, depending on the item in question and its expected useful life. Based on this information, the annual depreciation is the total cost divided by the total expected life span (useful life).
RECOVERABLE DEPRECIATION: EXAMPLE
The most common example would be for the replacement of a roof. A client has a five-year-old roof with a 20-year life expectancy, it would cost $8,000 to replace the roof, due to depreciation the roof is now valued at $6,000. After the replacement is completed, the $2,000 in depreciation could be recovered from the carrier. Together, cash value plus recoverable depreciation should equal the cost of replacing the item. If it is covered the client will receive two checks from the insurance carrier: the first for the actual cost value of the item that was destroyed and a second, after it is replaced, for the recoverable depreciation.
CLAIMING RECOVERABLE DEPRECIATION
To claim the recoverable depreciation, most carriers will require proof of the replaced items or completed work, like photos, a copy of the paid invoice and certificate of completion from the Contractor. This documentation is also important for the client to retain, as if there is another loss for the same property, this is evidence of the updated/completed work.
WHAT YOU NEED TO KNOW
Please remember, if the final cost of repairs is less than the estimated amount, the client may only recover up to the amount actually and necessarily spent to repair the damaged property less the deductible. Usually, the client has 365 days from the date of loss to claim the recoverable depreciation, but an extension may be granted if requested in writing to the carrier. I can assist with requesting an extension if it is needed.
As always, policy language differs by carrier so please refer to the specific policy in question.
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Disclaimer: These monthly blogs contain general information and may be subject to change. Policy language may vary by insurance carrier, so please refer to the specific policy in question. The Claims Advocate does not make any representations that coverage does or does not exist for any claim or loss and in no way guarantees coverage for claims.