Depreciation

Depreciation Primer

As a licensed public insurance adjuster, it is imperative to have a thorough understanding of the insurance policies that protect our clients' assets. Depreciation is an important aspect of insurance that plays a crucial role in determining the settlement amount of a claim.

When a client purchases an insurance policy to protect their property, it is important to understand that the policy may have provisions for depreciation. In the context of insurance, depreciation refers to the loss of value that an item experiences over time due to factors such as wear and tear, normal use, and aging.

The majority of Homeowner's policies and Business Owner's policies are written as Replacement Cost Value (RCV) policies. This means that in the event of a loss, the insurance company will pay the policyholder the current market value required to replace the damaged property, minus the deductible.

However, it is important to note that the initial payment made by the insurance company will be reduced by the application of depreciation. This initial payment, known as the Actual Cash Value (ACV) payment, takes into account the depreciation of the damaged property. Subsequently, the insurance company will issue a secondary payment for the depreciated amount, known as Recoverable Depreciation. When added to the ACV payment, the Recoverable Depreciation will equal the RCV of the property prior to the loss.

As a licensed public insurance adjuster, it is crucial to educate our clients on the nuances of depreciation and its impact on their insurance policy. By doing so, we can ensure that they receive the full benefit of their policy and the protection they deserve.

For the benefit of our clients at Faber Adjusting, it is important to understand the concept of depreciation and how it may affect an insurance claim. Depreciation is a method of determining the decrease in value of an item over time. In the insurance industry, depreciation is often calculated based on the estimated life expectancy of an item and its replacement cost value (RCV).

An experienced public insurance adjuster can assist in determining the amount of depreciation that may be applied to a claim and, in certain situations, help to minimize the impact of depreciation on the settlement. For instance, consider a roof with a replacement cost value of $100,000 and a life expectancy of 20 years. If the roof was damaged and 5 years old, it may be estimated that 25% of depreciation should be applied. This means the actual cash value (ACV) payment for the damaged roof would be $75,000 minus any applicable deductible. Upon replacement of the roof, the policyholder would receive an additional payment for the recoverable depreciation of $25,000, which would bring the RCV of the property to its pre-loss value.

When facing a property loss and the resulting insurance claim, it can be a daunting process to navigate alone. That's why it's essential to have an expert on your side. Working with a licensed Public Insurance Adjuster from Faber Adjusting will not only give you peace of mind, but it will also help you receive the maximum settlement possible. One key aspect of this process is minimizing depreciation, which can significantly increase your financial recovery. With the experience and expertise of Faber Adjusting on your side, you can be confident that your claim will be handled with care, attention to detail, and an eye for maximizing your settlement. Whether you are looking to repair or replace damaged items, or simply evaluate your options, Faber Adjusting is here to provide you with the consulting and guidance you need to make informed decisions and achieve the best possible outcome for your insurance claim.

Retain Faber Adjusting today.

• by Milton Faber