In recoverable depreciation, can ins co require proof of work done to get settlement check?

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Asked August 27, 2015

1 Answer


Before addressing whether an insurance company requires some kind of materials as proof, it's important to define "recoverable depreciation" for anyone who is unfamiliar with the term. Depending on your policy, an insurance company might decide to settle a claim based on the difference between the repair/replacement cost and the amount the covered piece of property has depreciated over time.

The initial settlement is calculated by deducting the "recoverable depreciation" - the standard depreciation and/or extra depreciation caused by any pre-existing damage - from the repair/replacement cost amount as dictated by the fair market value of a similar item found in stores right before the damage or the actual amount you pay to repair/replace an item, which is generally less than the original purchase amount. The resulting amount is known as the "Actual Cash Value" of the property at the time of the damage. The insurance company then cuts the settlement check for the ACV amount. If you have a deductible, the settlement check can be less than the ACV because the deductible amount is subtracted after the insurance company does its calculation.

Proof of work, such as receipts, invoices, and contracts, comes into play when you have replacement cost coverage as part of your policy. If you repair or replace the damaged property and provide proof of the work to the insurance carrier, the company then cuts a second settlement check for the recoverable depreciation dictated before other amounts, such as a deductible. If you pay less than the estimated replacement cost value, the insurance company will likely take the amount you actually paid and re-calculate the recoverable depreciation based on that new amount.

Much of this process is designed to guarantee that property insurance policy owners go through with their repairs/replacements when their policies outline replacement cost coverage. If you take the initial settlement check and you then do not repair or replace the damaged area, that can allow insurance carriers to refuse claims for customers when a second incident occurs that involves the original damaged property.

When providing evidence to a claims representative at your insurance company, make certain that any receipts and invoices clearly outline your name, insurance policy number, and the type of repaired or replaced item at the top of the documentation to make it easier for the insurance company to review.

Answered August 31, 2015 by HomeService

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