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How Recoverable Depreciation works on Roof Replacement

Lombard Roofing

How Recoverable Depreciation works on Roof Replacement

In the past years, catastrophic events have made the insurance industry to face huge financial impacts. Many homeowners face great challenges in trying to understand how recover depreciation on things like roof from their insurance claims. It is first very important to an insurance policyholder to understand whether they have recoverable or non-recoverable depreciation.

Recoverable depreciation on roof replacement in Naperville Illinois is the maximum amount which a homeowner can recover once replacement or repairs have been completed. If your insurance policy states non-recoverable depreciation, then one cannot recover any money from the insurer at any point in the life of the claim. Items considered recoverable such as roof replacement are mostly defined within the loss settlement of the homeowner’s policy.

Once it is clear that depreciation on your roof is recoverable, and then you will need to spend the amount stipulated by your insurance adjustment to make your repairs or replacement. The amount indicated by the insurance adjuster is called the Replacement Cost Value and you can only spend up to this amount for you to receive the full recoverable depreciation.

Once the Replacement Cost Value (RVC) has been established, depreciation is then subtracted from this figure. The new net figure is called Actual Cash Value (AVC). AVC is the amount that is initially paid to the homeowner. If there are applicable policy deductibles, they will be subtracted from the AVC before the figure is given to the homeowner. However, AVC is not usually considered as the final payment. This is because there might be other additional payments mad representing recoverable depreciation. However, this is only done after repairs or replacements have been completed.

The homeowner has to submit a copy of the contractor’s invoice to the insurance company to show that repair or replacements have been completed. It is only then that the insurer will release the recoverable depreciation to the homeowner. The total payments as per the invoice plus the remaining balance have to be equal to the Replacement Cost Value for the homeowner to receive the total available depreciation. The insurer will only send the recoverable depreciation that the homeowner has been invoiced for. Even if the homeowner trying to save some money when doing the repairs or replacement of the roof, the insurer will not give any rewards to the homeowner.

Here is an example of how recoverable depreciation works on a damaged roof:

A homeowner has insured a home for $100,000. Then after a hailstorm, the roof of the home gets damaged and has to be replaced.; The total cost of replacing the roof is $10,000. $10,000 here is what is what is being above referred as the Replacement Cost Value. The roof is 15 years old. As per the insurance policy of the homeowner, the recovery deductible is 1%. Now, 1% of the insured amount of the home is $1,000.

The insurance adjuster then depreciated the roof by 50%. Ideally, the value of home items such as the roof has to depreciate over time. This depreciation is based on the age of the roof. So the Actual Cash Value of the roof, 15 years later, is now $5,000. The recoverable depreciation of the roof is $5,000 too. In other words, it is the Replacement Cost Value minus the Actual Cash Value.

The insurer deductible is $1,000. The insurer will make a payment of $5,000 minus the $1,000 deductible.

A homeowner will make replacement of $5,000 to the roofing system. Then the homeowner will provide the $5,000 invoice to the insurer. The insurer will release $5,000 of recoverable depreciation to the contractor.

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