If you have had to file a homeowners insurance claim to replace damaged, stolen, or destroyed personal property you were probably surprised to learn that you may not be paid the full replacement cost of your items. Many homeowner policies pay out the actual cash value (ACV) of the items and ACV takes depreciation into account.
However, many homeowners insurance policies are replacement cost value (RCV) policies which will pay out the cost to replace your property regardless of depreciation, but there may be some extra steps involved to get the recoverable depreciation.
Best way to explain recoverable depreciation
Many homeowner policies cover your personal property at ACV which is calculated by taking the replacement cost of the item minus the depreciation. As an example, if your 10-year TV is destroyed by a covered peril the actual cash value may only be $100 but it could cost $500 to replace it with a brand-new TV.
The difference between the two, $400 is called recoverable depreciation. If you have a replacement cost value policy (RCV), your claim will list out the recoverable depreciation on your claim documents. With a replacement cost value policy, you will be paid out the actual cash value of the item and will then be reimbursed the recoverable depreciation after you submit receipts proving you purchased a replacement.
When your claim is being investigated and your items are being priced, the adjuster will research the replacement cost as well as an items life expectancy using guidelines issued by the government or in some cases, the National Association of Home Builders.
As an example, if your TV is two years old, cost $1,000 when you bought it and its lifespan is 10 years, the actual cash value of the TV is now $800 as the TV will depreciate $100 a year.
Your insurance company would pay out the ACV of $800 and then reimburse the $200 once you submit a receipt for the new TV.
How to claim recoverable depreciation
If you have a replacement cost value policy, you will have to jump through a few hoops to recover the full RCV of all your damaged or destroyed property. In most cases, your deductible will also be subtracted from your claim check. Here are the steps to recovering your depreciation on a home claim.
Let your insurer know: Alert your adjuster or insurer that you will be replacing the item and recovering the depreciation. In some states there may be a time limit to recovering the depreciation, it could range from six months to a year.
Replace the items or have them repaired: If you plan on replacing the items it needs to be one of comparable price and quality. You are not allowed to purchase a less expensive item and keep the difference. While you are more than welcome to upgrade from your last item, your insurer only offers coverage up to the original items cost, you will pay the difference out of pocket.
Get paperwork together: As you repair or replace your items make sure you collect all of the necessary paperwork including receipts and contracts. You will need receipts for all items you are replacing.
Submit your claim documents: You can submit your documents to your adjuster who will review them and either issue a payment or contact you with questions.