Depreciation – How It Affects Your Insurance Claim

Whether you own a commercial or residential property in West Palm Beach, Florida, you will need to have insurance to cover your property in the you sustain property damage.
 
Understanding your policy and the coverage it provides is critical when it comes to filing a property damage insurance claim.
 
What is Depreciation?
Although your policy may provide for replacement cost coverage (RCV) when you have property damage, your insurance company can deduct depreciation before they apply a deductible when issuing payment for the claim.  This is considered an Actual Cash Value (ACV) payment.
 
Depreciation is usually based on the age of the damaged items and their expected life span.  Items like drywall, paint, and cabinets for example. When the depreciation is withheld from the claim payment, the insurance company will provide instructions on how to recover that amount.
 
Recoverable Depreciation
In most cases, the depreciation will need to be incurred for the insurance company to release the withheld amount.  Insurance companies vary when it comes to what they request for proof of repairs to release the withheld amount.
 
Some may only require that the repairs be completed and that you provide photos showing proof that repairs were done.  More often than not, you will probably be required to provide more extensive documentation that not only shows proof that the repairs were completed, but also proof that the repairs were completed for the amount the insurance company estimated, before the deduction of the depreciation and applied deductible.
 
Non-Recoverable Depreciation
Some policies are issued with non-recoverable depreciation which means that the depreciation that is deducted cannot be recovered or released.
 
We have seen property owners choose to have this kind of policy to help lower their insurance premiums. This sometimes comes in the way of ACV coverage for their personal property.
 
As I wrote in a prior blog, there can also be endorsements or limits within the policy that would place ACV coverage on the building, such as a roof deprecation schedule, that limits the recovery based on the age of the roof. 
 
If you have a new, underpaid or denied insurance claim, we provide free claim reviews and may be able to help.  Contact us today.