Every year you own your house or your furniture, the value depreciates due to age. A replacement-value homeowners policy compensates for that. If, say, your $800 refrigerator depreciated half its value before it burned up in a fire, an actual-value policy pays only what it was worth -- $400. Replacement-value policies pay the cost of buying a new fridge. Depreciation is still a factor, though.
Even if your policy pays replacement value, insurers usually apply "recoverable depreciation" when you file a claim. If your claim is valid, your insurer gives you an actual-value payment for the cost of replacement property, less depreciation. After you pay for replacements or repairs, you get the rest of your money. For years, policies have included clauses allowing this, but insurers didn't always invoke them. After several bad hurricanes early in the 21st century, it became common.
To claim recoverable depreciation, you have to prove to your insurer that you completed your repairs or replaced the damaged furniture or property. Insurers say that this makes it harder to file and collect on false claims, and that this benefits everyone. Industry critics say that the added paperwork discourages homeowners from filing for everything they're entitled to. If a homeowner gets tired and gives up claiming her depreciation check, that results in more profits for the insurer.
If your insurer withholds recoverable depreciation, get some file folders ready. You need to save any and all invoices, contracts, receipts and checks involved with the depreciated property, then submit copies to your insurer's claims representative. Identify on each piece of paperwork what it paid for -- the item or the part of the house involved, and whatever work the contractor did. Note the claim number your insurer assigned you and refer to it whenever you talk to or write the rep.
If you don't file your paperwork on time -- typically within 180 days of the original loss -- your right to recover the depreciation expires. Contact your insurer's claims department if that's impossible. After a hurricane or earthquake, for example, homeowners may have to wait months to get a contractor to make repairs. While you wait, you can go ahead and cash the actual-value check the insurer sent. This doesn't prevent you from receiving more money later.
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