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What is recoverable depreciation?

tony • May 3, 2019

Many times, people are surprised to see that the check received as settlement for their home insurance claim has a line item deducting for depreciation.  This can happen even if the policy is a replacement cost policy.  However, if you do have a replacement cost policy the depreciation is typically recoverable depreciation which means you may be able to get it back. 

Want an example?

Let’s say that your 15-year-old roof is damaged due to some event that is covered by the insurance policy, such as hail.  Let’s also assume that the insurance adjuster determines that you need a new roof.  The insurance company will cut you a check for the cost of a new roof, that’s the replacement cost provision within the policy.  But they first subtract for deprecation and then they’ll subtract your deductible. 

So what’s depreciation? 

For easy math, let’s assume that your roof has a useful lifespan of 30 years and that the cost of the roof is $20,000.  In our above claim scenario, the roof is 15 years old when it was damaged by hail, so it was half way through its useful lifespan.  Since the roof had only half its remaining value left, your insurance company will only pay half the cost of a new roof, or $10,000. 

So how do you get the recoverable depreciation back? 

In our claim scenario, you would simply show the insurance company that you have replaced your roof.  You do this by providing a Certificate of Completion or Invoices or Roofing Contracts or final permits.  Ultimately, it’s up to the insurance company and the insurance adjuster will advise you on what’s required, but when you provide the documentation they will send you a second check for deprecation.

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