The most commonly asked question about a claim is… Why is my check not the full amount of my estimated loss? Where did all the money go? If you have never experienced a homeowners insurance claim this is an understandable question. If the insurance company says “your roof sustained $5000 worth of damage” I am going to assume a check is coming the mail for $5000. One of the reasons for receiving less than your estimated damage is all insurance policies carry a deductible so this will be deducted from your final pay out. This is pretty common knowledge but it helps to be reminded. The other less known reason you will receive less than the full estimated amount is something called “Depreciation”. There are two kinds of depreciation: Recoverable and Non-Recoverable. The first means you can get it back, the second one means this is not something you can get back.
If you’re like many of our clients you may wonder how to recover depreciation from an insurance claim. First it is important to know if you have recoverable or non-recoverable depreciation. In most cases depreciation is recoverable unless the policy is an Actual Cash Value Policy. Actual Cash Value means the type of policy you have only covers you for what your property is CURRENTLY worth not for what it costs to replace it. These policies are not standard but they do exist for people who have homes that are very old, in disrepair or if you own and invest in many properties. Most people carry Replacement Cost coverage on their home insurance if that’s the case for your policy then depreciation would be recoverable.
If your depreciation is recoverable you will need to replace or repair what was damaged in order to receive the full recoverable depreciation. In a roof claim for example most roofing companies will accept the Actual Cash Value payment, including the deductible, to start repairs. Also a courtesy they may even wait for the client to receive the recoverable depreciation from the insurance company to pay the remaining balance. A good roofing company will provide a complete itemized invoice showing exactly what was done and how much it cost, for you to submit to your insurance company. This will prompt the insurance company to send you a check for the recoverable depreciation.
The insurance company also puts a deadline on submitting a request for the recoverable depreciation. Each carrier is a little different but we recommend checking with your assigned claims adjuster and making sure you are making your repairs in a timely manner to avoid losing the opportunity to claim your recoverable depreciation.
Here’s an example of how a claim may go:
A home is insured for $100,000 and has a total roof loss from a hail storm, The cost to replace the roofing system (Replacement Cost Value) is $10,000. In this example the roof is 15 years old and the policy owner’s deductible is 1% of insured amount ($1,000).
The full replacement cost of the roof would be $9,00, which is the Replacement Cost less the deductible. You might see a break down that looks like this:
$10,000 – total claim value
-$1000 – deductible
$9000 – Claim payment
-$4000 – Recoverable depreciation
$5000 – Actual Cash Value Payment
In this case the client would receive a check for $5000 and would receive the $4000 after they submitted proof of roofing repairs.
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