Following a hurricane, you may end up knowing more about your homeowner’s insurance and flood insurance than you thought possible—or ever wanted to know! One term you may have to learn about is recoverable depreciation in insurance. In short, this refers to the dollar amount difference between the actual cash value of your property and its replacement value, although it can be more complex.
When you are struggling to recover following a hurricane, you may feel as though there are dozens of things you need to attend to and that there is simply not time to do it all. If you receive a notice of denial, a lowball offer, or your insurance company keeps delaying your payment, your frustration levels may increase exponentially. This is where an experienced, knowledgeable attorney from Gulf Coast Insurance Attorneys comes in.
We deal with insurance companies on a daily basis, working hard to ensure our clients get the settlement they need and deserve in a timely manner. We will never let an insurance company take advantage of you during your most vulnerable time. We will help you determine what your claim is worth, then will deal with the insurance company to get that amount so that you and your family can get back to your lives as quickly as possible.
What is Recoverable Depreciation?
Your insurer may pay replacement cost claims with two checks—the first part will be for the actual cash value minus recoverable depreciation. You will then repair or replace the item in questions, and your insurer will send a second check for the recoverable depreciation amount.
The idea behind this is to prevent policyholder fraud in the form of receiving the entire cash value, then purchasing a much less expensive replacement and pocketing the extra cash. Once you provide proof that shows repair or replacement, you receive the remainder of the cash value, and the transaction is considered complete.
If you read through your insurance policy, it may state that your insurer will provide replacement cost for your home and personal property. Under recoverable depreciation, that replacement cost is not paid until you have actually repaired the damage or replaced the damaged item. Depreciation is the loss of value over time. Depreciation is based on the age of the item, the condition of the item, and the “useful life” of the item. The useful life of an item varies considerably from one item to another.
As an example, a computer may depreciate much faster than your roof, simply because the ever-changing technology renders computers much less useful after 3-5 years, while a roof can be expected to last for 20 years or more. Useful life is also known as obsolescence, which is dependent on whether newer models have been released.
The exact way your insurance company will calculate recoverable depreciation could vary from the way another insurance company would calculate it. In many cases, the useful life of an item is estimated, then the value of that item is reduced by a fraction of that life for each year, all the way down to zero. Therefore, if you spent $10,000 on your new roof, and the life of that roof is estimated to be 20 years, every year your roof would depreciate by one-twentieth of $10,000 ($500 a year). Assuming your roof was entirely destroyed by a hurricane when it was in the 8th year, then the actual cash value of your roof would be $6,000, and the recoverable depreciation amount would be $4,000.
Some insurers may implement non-recoverable depreciation on certain items when your policy states that you have an actual cash value policy that will only reimburse you for the depreciated value of any property that is damaged. So, non-recoverable depreciation equals total depreciation. In this instance, you would receive only $6,000 for the roof in the example above.
Exceptions on Replacement Cost Policy
Sometimes there are exceptions on some items or certain causes of damage, even when you have a replacement cost policy. As an example, a “fragile” item, like an awning over your deck might only be covered up to its actual cash value. Your deck, on the other hand, is not considered fragile, so the coverage for the deck could be the full cost of replacement.
The cause of the damage can also have an impact on how your insurance company pays. For example, if your roof is damaged by a falling tree, your insurer might pay replacement cost value on the roof but might only pay the actual cash value of the roof when it is damaged by hail or wind. As you can see, there are so many variables associated with recoverable depreciation in insurance that it is essential that you read through your policy very carefully and understand all the terms.
Gulf Coast Insurance Attorneys Can Help You Receive a Fair Settlement for Your Hurricane Insurance Claim
Whether you are dealing with recoverable depreciation in insurance, or any number of other issues related to your settlement following a hurricane or flood, it can be a difficult, frustrating experience. At Gulf Coast Insurance Attorneys, we help people just like you who are being offered much less than their claim is worth, having their claim denied altogether, or whose insurance company is constantly delaying their settlement. We deal with situations like this regularly. We know that this is a trying time for you, and we know we can help. You deserve the time to begin putting your life back together without having to constantly fight with your insurer. Let us do that for you! Contact Gulf Coast Insurance Attorneys, today.