Understanding Recoverable Depreciation with Homeowners Claims
The purpose of this article is to clarify and help understand how recoverable depreciation with homeowners claims is collected after the initial claim payment has been received. If you would like to get information about recoverable depreciation verse non-recoverable depreciation, please contact our office.
Depreciation is the diminished value of a particular item over a period of time. Depreciation can be calculated by either years or percentage (based on the age and condition of the item).
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In this example, the insurance company agreed to pay for damage to the roof in the amount of $15,000.00 (RCV – replacement cost value). The insurance company applied $3,500.00 in depreciation and released a payment of $11,500.00 (ACV – actual cash value). In order to collect the full amount of the depreciation, you need to present a paid invoice for the completed work in the amount of $15,000.00. Perhaps the roofing invoice is $14,000.00. Don’t worry you are entitled to collect the recoverable depreciation but the amount collected is $2,500.00. Lastly, if the paid invoice for the completed work is $11,500.00 or below, you are not entitled to collect the recoverable depreciation.
In this example, the insurance company agreed to pay for damage to the carpet in the amount of $8,000.00 (RCV – replacement cost value). The insurance company applied $2,000.00 in depreciation and released a payment of $6,000.00 (ACV – actual cash value). In order to collect the full amount of the depreciation, you need to present a paid invoice for the completed work in the amount of $8,000.00. Perhaps the carpet invoice is $7,000.00. You are still entitled to collect the recoverable depreciation but the amount collected is $1,000.00. Lastly, if the paid invoice for the completed work is $6,000.00 or below, you are not entitled to collect the recoverable depreciation.
I hope these examples can help answer the question on how recoverable depreciation is collected.
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