What is Recoverable Depreciation?

The things that we own decrease in value over time in most cases. As things age, they are more likely to break, and they can get worn out. This includes things like clothing, cars, electronics, houses, and more. For electronics, as new technology comes out, older technology is worth less as well. There are many reasons that goods lose value, and in insurance, this loss of value is called depreciation. In some cases, you may be able to get additional money beyond the actual cash value, money for the depreciation of things, when filing a claim.

What Is Recoverable Depreciation?

In order to find the recoverable depreciation of goods, the actual cash value is subtracted from the replacement value of the goods. If an item was purchased for $1,000 and it is now worth $700, it has had a depreciation of $300. Even so, this is not always the recoverable depreciation. In order for recoverable depreciation to exist, you need an insurance plan that covers the total replacement cost of the goods. Some insurance policies only provide coverage for the actual cash value, or ACV, of goods or home repairs.

The actual cash value of something is what it is worth at a specific moment in time. In the case of insurance, it refers to the cash value at the moment the accident or damage occurred. When purchasing homeowners insurance, make sure to note which values are used for which things. If you want some things to be covered one way or another and it is not listed that way on a policy you are considering, ask whether the company has coverage in the way you want it. In some cases, you may look into other insurance companies, or purchase additional riders, or insurance coverage add-ons.

If you have a homeowners insurance policy that has replacement cost value coverage, also called RCV coverage, you may be curious to know how you will get your insurance claim payment. Generally speaking, the payment will be sent out in two separate payments. The first check you will receive is generally an actual cash replacement check. Keep in mind that this is not the total amount of money you will receive, and that another check will be coming your way as well.

This second check is sent by the insurance company after you have gotten the total bill for the repair or replacement of the item(s) to them. This check will include the recoverable depreciation. Your homeowner insurance company will use the bills and numbers you submit to get to this amount.

There are two main reasons the top insurance providers give checks in this manner. First off, it allows the claims compensation to be more accurate while also giving the policyholder some initial money to help them pay for the replacement cost or the repair cost. The second motivator for this is that it helps discourage fraudulent claims.

How Is Recoverable Depreciation Calculated?

While each insurance company uses different formulas to determine recoverable depreciation, there are some more common ways that it is done. One of these more common ways is for an insurance company to come up with a ‘lifetime’ for the item. After the items useful lifetime is determined, the purchase cost of the item is divided by that number of years or months. The value of the item in terms of actual cash value is determined by subtracting the depreciation, which is the number of years times the loss of value each year, subtracted from the replacement cost value.

The recoverable depreciation is the total replacement cost value of the insured items minus the actual cash value of the items.

Remember that there can also be depreciation that is not covered by your insurance policies. You will need to check as you purchase your policy to see if you have an actual cash value insurance plan, a total replacement cost insurance plan, or a combination of the two. If you have a combination of the two, make sure to look at which items are covered by which type of value.

How To Claim Recoverable Depreciation?

There are a few steps to filing this type of claim. First off, contact your insurance company and let them know what the claim is being filed for and what happened. If they try to offer you a check right away, make sure you have done the proper research on the value of the covered things, and that the depreciation being listed is accurate. Some people choose to hold off for a short while so they can research more. Insurance companies often want to complete the claim and end it, hoping to avoid additional costs that were not initially noted.

Remember that some items might only be covered for their actual cost value. Depending on the policy, you need to use some of your own money to pay for the covered services or items, to get reimbursed after. Policies can vary quite a bit, so be sure to read the policy details so you are aware of what they say before filing a claim. In some cases, it may be wise to contact a professional, particularly if the numbers you are getting from your insurance provider seem low or the expenses you will end up with will be large.