What is Recoverable Depreciation on an Insurance Claim?
Recoverable depreciation on an insurance claim is the additional amount an insurance company pays beyond the actual cash value to cover the full replacement cost of an insured item that has been repaired or replaced after a covered loss.
Recoverable depreciation is a concept used in insurance claims related to personal property, such as furniture, electronics, or appliances. It refers to the amount of depreciation that can be recovered when the insured item is repaired or replaced.
When an insured item is damaged or lost, the insurance company typically calculates the actual cash value (ACV) of the item, which considers the original cost minus depreciation based on the age and condition of the item. This amount is usually less than the replacement cost of a new item.
However, if the insured has a replacement cost policy or endorsement, they may be entitled to recover the additional amount of depreciation beyond the actual cash value. This additional amount is known as recoverable depreciation.
Here’s how it works:
- Initial payment: The insurance company initially pays the actual cash value (ACV) of the damaged or lost item.
- Repair or replacement: If the insured decides to repair or replace the item with a similar kind and quality, they can submit the receipts or invoices to the insurance company.
- Recoverable depreciation calculation: The insurance company then calculates the amount of depreciation that was initially deducted from the replacement cost when determining the ACV.
- Additional payment: The insurance company then pays the insured the recoverable depreciation amount, effectively reimbursing the full replacement cost of the item, minus any applicable deductible.
The purpose of recoverable depreciation is to ensure that the insured can fully replace their damaged or lost personal property without being penalized for the depreciation that occurs over time. Check your policy details or endorsements to determine if you have the replacement cost coverage that allows for the recovery of depreciation.
Consult with an insurance bad faith lawyer if your insurance claim has been unfairly denied.
