What is depreciation on my insurance claim?

     After a hurricane or a catastrophic weather event causes damage to your roof shingles, you most likely file and insurance claim.  Most people think the adjuster will just come out and write them a check for the damages less the deductible. (The deductible is the insured share in the loss and varies in amount from policy to policy.)  This is not the case, your initial check will be for less.

     The check will be for the actual cash value of the damages less the deductible.   The actual cash value (also known as ACV) is the total estimated cost to replace the damaged item less depreciation.  Depreciation is a deduction for the amount of life you used on the damaged item.

For example, if you have a 25 year roof that is 5 years old, 20% of the roofs useful life has been used.  The depreciation deduction is for that 20% of the estimated replacement cost (RCV).    So if your new roof is to estimated to cost $10,000.00 to replace the insurance company would deduct  $2,500 (25% depreciation for the life of roof that was used already) less your deductible - %500.00 (for example) = $7,000.00 claim payment.

   Many policies offer replacement cost benefits.   This replacement cost benefits does not mean you get a full check right away.  They still deduct the depreciation on the initial check but pay you back that depreciation if and when you replace the item.  Most insurance companies will ask you to provide them a signed contract with a roofing company or proof the roof has been replaced.   The Insurance companies will mail you a second check for the depreciation up to what you incurred.  If you do not spend the full amount the insurance company estimated the cost to be, that second check will only be up to what you spent (still less your deductible).