Most common things wear out over time -- that amount of time is that thing's lifetime.
For example: insurers and adjusters might use a lifetime of 100 years for the brick on the side of a house, 4 years for the paint on your interior walls, 50 years for the drywall under the paint. For simplicity, they may use an average or common value for classes of things: 9 years for household furniture, 5 years for kitchen utensils.
These numbers, the value for a lifetime, are based on experience for common items; remember that high quality items generally last longer than common items. Also, keep in mind that different insurers and adjusters may arrive at different values for estimating lifetime, depreciation and actual cash value , as well as estimates for replacement cost. An insured may benefit from the advice of a competent insurance professional, particularly in large commercial or residential losses. Allways review and discuss your adjuster's estimate with the adjuster.
Estimates for lifetime are used to evaluate depreciation. In one form of depreciation, "straight-line depreciation", the value of thing goes down equally for each year of its life. For example, if paint on the wall lasts 4 years before it is worthless, then it loses one-fourth of its value each year, or 25% of its value. If brick is estimated to last 100 years, then it loses 1/100th (or 1%) of its value each year. This method of evaluating depreciation and lifetime is known as "straight line depreciation", an equal amount each year.
On the other hand, if paint is estimated to last 7 years, then it loses 1/7th of its value each year. This could be better paint. An adjuster could amend his estimate of cash value, for better maintained paint, by increasing the life-time, or by reducing the percentage depreciation. If he does this, he increases your actual cash value, and you're paid more.
Adjusters and insurance companies typically use tables which describe the lifetime for categories of things. For example, an insurance company may estimate that household furniture lasts 15 years before it wears out and is replaced. They also, typically, estimate depreciation based on the straight line method, described above.
For the furniture example, this would mean that the adjuster will estimate depreciation at 1/15 of furniture replacement cost, for each year that you owned the furniture.
The estimate for depreciation is what more directly affects your claim. For example, if a fire damages 5 year old furniture, furniture has a 10 year lifetime, and you are paid actual cash value for losses on your policy, you would be paid 5/10 or 50% of the current replacement cost. On the other hand, if the furniture lifetime lasts 20 years, and is 5 years old when damaged, it is only depreciated 25%, and you are paid 75% of the replacement cost. Note: Higher quality furniture lasts longer.
The adjuster's estimate, presented with a check for an insurance claim, should document the estimated replacement cost, the depreciation and the actual cash value. However, the adjuster's printout may not include the underlying lifetime used in the adjuster's calculation. This information is available, and can be requested from the adjuster. Some adjusters, when entering data into the estimating software, may enter the age of the item, or the percentage of depreciation to take, or even a fixed dollar figure for depreciation. This information should be available, also, if requested.
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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.