Solutions for Risk Exposure®


What does Depreciation do to your Insurance Claim?

You have a "Replacement Cost" Policy"

If you have "replacement cost" insurance, and your insurer pays 100% of that cost right away, then it won't matter.

However, some "replacement cost" policies won't pay full replacement cost until you actually replace the damaged thing. Some insurers refer to this type of policy as a "replacement cost benefit" policy. A section of the policy explains how the adjuster settles the claim.

If you have a replacement cost benefit or policy, the insurer may first pay the "Actual Cash Value", "ACV", or depreciated value. The adjuster follows the policy language on settlements and estimates ACV, often as current replacement cost minus the depreciation. For some claims (for example, for small claims, or during large catastrophes), some insurers may waive policy language and pay all or part of the estimated replacement cost up front.

The insurer pays actual replacement cost when you present proof of replacement (e.g., your invoices, contracts or receipts). Remember: the full payment is based on the actual cost of replacement; not the estimated replacement cost used to estimate actual cash value.

You have an Actual Cash Value Policy

If you don't have a "replacement cost" policy, or a "replacement cost benefits" in your policy, you are only paid the "actual cash value" ("ACV").

For assistance after a loss to your business, home or other property
Contact John Ruskin at the address or phone number, below.

John Ruskin is a Louisiana attorney
and a licensed adjuster in multiple states,
with a background in business, residential and environmental claims.
Additional background on John Ruskin is available here.

There is no fee for an initial consultation.

An Example of a Depreciation Calculation - How to Estimate Depreciation

An example of how depreciation is calculated, and a claim is paid

Some Additional Ideas:

  • First: An estimate of depreciation depends on lifetime and how that depreciation is calculated - most claims adjusters use a "straight-line" method. Choosing the lifetime incorrectly, or not accounting properly for quality, age, condition or salvage value can impact your damage claim. This is why it is important to carefully review your insurer's adjustment, ask questions of your adjuster, and in some cases to seek the advice of a competent insurance loss professional or counsel.
  • Second: Calculating depreciation is one way to estimate the current value of something. In uncommon situations, the current value of some things would not be reflected by a common depreciation calculation. Examples are: antiques, high quality furniture in comparison to bargain brands, or items with extremely long useful lifetimes (cemetery headstones or high quality flatware). If there is a ready, local, current market for something, that price could be used to reflect actual cash value.
  • Third: Some insurers make an accommodation, in favor of the insured, by limiting depreciation -- this may account for errors in the inexact art of determining a claim's value for something. For example: an insurer and adjuster may choose to limit depreciation to 50 percent -- even though their policy does not explicitly tell them to. Different insurers and adjusters may have different rules and practices. However, even with this accommodation, a large enough error in age, lifetime or market value might incorrectly calculate the loss too low.
  • Fourth: Generally, each line item in your estimate will have its own calculation of ACV, depreciation and replacement cost. If you have additional information on value, condition, age, or replacement cost, you are entitled to provide support for this guidance to the adjuster, and you should.
  • Fifth: Some items in your estimate may not show any depreciation. Depending on state and insurance company practices, this may include: repairs or cleaning, labor, or costs of removing and disposing a damaged thing.
  • Other Related Information

    What is depreciation?

    Depreciation is an estimate of age and condition, with an estimated lifetime

    Lifetime - how long a thing lasts . . .

    Most common things wear out over time -- that amount of time is that thing's lifetime.

    Salvage value

    Salvage value - What it's worth, now that it is useless . . .

    For more information on how to prepare for an insurance claim, or assistance in the adjustment of insurance claims, please contact John Ruskin at the address or phone number, below.