There are two important terms involved in depreciation. ACV (Actual Cash Value) and RCV (Replacement Cost Value). Depreciation is the difference between the RCV and the ACV. Depending on your specific insurance policy, the depreciation is either recoverable or non-recoverable.
Because most insurance policies grant payment for ACV at the time of loss. If you have a Replacement Cost Value policy, your insurance carrier will then pay the claim in two parts – the actual cash value and then the recoverable depreciation. This follows the provisions of the insurance policy – which is a legal contract, dissuades from fraud and prevents excessive claims payments. It keeps everything fair while ensuring that a claim doesn’t get overpaid. Inflated claims are detrimental to everyone because it affects everyone’s insurance premium.
Your recoverable depreciation is the difference between the value of the material/product at the time of the loss and what it is estimated to be the final cost will be once the repairs/replacement is complete. The exact method to calculates total recoverable depreciation depends on your insurer’s policies and what the damaged item is. But the most common way is for your insurance company to consider an item’s useful lifetime, and reduce the item’s value by the same fraction of that lifetime each year until its value is zero. The amount it’s worth at any given time is called its actual cash value.
Some policies do not have Replacement Cost Coverage and only the ACV is allowed. These are called ACV policies. Therefore, the 1st insurance payment (after deductible) is the only check you will receive unless a price difference is pre-approved by insurance or additional, hidden damage is found during repairs.
We are available to answer questions about insurance claims at 308-532-3546. At Hunt’s Construction we are committed to keeping insurance claims fair and reasonable with local competitive pricing so that premiums stay affordable for the public.