Understanding
depreciation
Your home and most of
its contents, such as your television, your washing machine and even your roof,
may lose value over time due to factors such as age, wear and tear, and
obsolescence. This loss in value is commonly known as "depreciation."
Under most insurance
policies, claim reimbursement begins with an up-front payment for the actual
cash value of your damage, or the value of the damaged or destroyed item(s) at
the time of the loss.
If you have
replacement cost coverage included on your policy, you may be able to receive
additional money to cover the depreciation of these items. If this is the case,
reimbursement may involve two or more payments – one for your initial payment
based on the actual cash value of your items and then additional payment(s)
once you repair and/or replace the damaged or destroyed items and provide us
with documentation.
Here´s some more
information on how we calculate depreciation and determine whether or not you
are entitled to any additional payment(s).
Calculating depreciation
Generally,
depreciation is calculated by evaluating an item´s replacement cost value
(i.e., the current cost of repairing the item or replacing it with a similar
one) and its life expectancy (i.e., the item´s average expected lifespan).
For example, let´s say
your 37-inch LCD television was destroyed in a house fire. You bought the
television four years ago and it was in good condition before the fire. A
similar television is sold in stores today for $1,000 (the replacement cost
value). This television has a life expectancy of 10 years, meaning it loses 10%
of its value each year. Because your television was four years old, it had lost
40% of its value before being destroyed by the fire. Therefore, the actual cash
value (i.e., the value at the time of the loss) of your television is $600.
Cost of new TV today
This calculation
technique also applies to most of the structural components of your house that
wear out over time, such as the roof. If your house has a 25-year composition
shingle roof, it would depreciate at 4% a year under normal conditions. If the
roof is 10 years old at the time of your loss and it requires replacement, we
would subtract 40% depreciation (10 years x 4% a year) from your replacement
cost estimate to determine the actual cash value of your roof. Please keep in
mind the condition of an item may also factor into the depreciation
calculation.
Understanding your claim estimate
The estimate provided
by your Travelers claim representative outlines your initial claim payment
(noted as "Net Claim") based on the actual cash value of your
property, less your deductible.
If you have
replacement cost coverage, you may also see an amount for "Recoverable
depreciation." This is the total amount of depreciation shown on your
estimate based on the age and condition of your damaged item(s). In the example
above referencing your television, the recoverable depreciation is $400.
Replacement cost value $1,000
Less depreciation (400)
Actual cash value $600
Less deductible (500)
Net claim $100
Recoverable
depreciation
Net claim if all depreciation is recovered $500
Submitting a request for recoverable depreciation
If you have
replacement cost coverage, here are the next steps you should take:
·
Repair or replace the damaged
or destroyed item(s).*
·
Save all invoices,
signed contracts, receipts and/or canceled checks associated with the repair or
replacement of your property and submit them to your claim representative.
·
Specify in writing at
the top of each receipt or invoice which items were replaced and/or what work
was completed.
· Provide either the original documents or legible copies to your claim representative, and remember to keep copies for your files. Include your insurance claim number on all correspondence.
Once your request for
reimbursement is received, your claim representative will contact you to
discuss any additional payment(s).
* Your potential
reimbursement is governed by the replacement cost. If you find that you cannot
repair or replace damaged or destroyed item(s) for the replacement cost
established on your estimate, please contact your claim representative before
repairing or replacing the item(s).
Also, please keep in
mind that when repairing or replacing an item, you can only recover the amount you
actually spend. For instance, in our earlier example we determined the
replacement cost value of your television was $1,000. If you purchase a
replacement television for $900 and submit a request for the recoverable
depreciation, the carrier will reimburse
you $300–the difference between the actual cash value of your previous
television ($600) and the cost of your new one ($900).
What is depreciation?
When is it applied to my loss, and can I get any money back for it?
Depreciation is the
loss of value that occurs over time due to factors such as age, wear and tear,
and obsolescence. If you have replacement cost coverage included on your
policy, you may be able to receive additional money to cover the depreciation
of these items. If this is the case, reimbursement may involve two or more
payments — one for your initial payment based on the actual cash value of your
items and then additional payment(s) once you repair and/or replace the damaged
items and provide us with documentation. For more information about how
depreciation is calculated, CONTACT Wayne Belt Restoration at 615-692-1748.