Is insurance company required to release all depreciation if I complete work for less than there estimate?
UPDATED: Jul 11, 2017
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Asked July 11, 2017
You have asked an interesting question about replacement cost insurance coverage that involves more than one legal concept. First, there is the issue of recoverable depreciation. The second issue involves the concept that you cannot make a profit on a property damage claim. The purpose of property insurance is to make you whole, so you are not out any funds. It is not to allow you to profit from your misfortune.
Let's take the example of the roof on your house that has been damaged beyond repair. Suppose replacement cost from a roofing contractor is $20,000. The existing roof had a lifetime of 20 years, and it has been 10 years since it was installed. So although it costs $20,000 to replace the roof, it was only worth $10,000 prior to the total damage. Recoverable depreciation is $10,000, the difference between replacement cost and actual value.
An insurance company in Louisiana will withhold the $10,000 recoverable depreciation until you show proof that your roof was repaired. In the event you do not repair the roof but pocket the $10,000, then you will be unable to file a claim in the future regarding your roof since you have been paid its current and true value.
One point involves the roofing contractor's actual price. If it turns out to be different than the original estimate, then you can only receive payment from the insurance company for the actual amount you paid the contractor.
Your question also raises the issue of you doing the work yourself. If you buy all the roofing materials, and then do the labor yourself, it will obviously cost less since you will not have a warranty. The insurance company may pay you for your labor, but not for overhead and profit. A large repair job is probably not a good idea due to the time involved, and the lack of legal protection in the future.
Answered July 17, 2017 by Parker2009